To amend the Internal Revenue Code of 1986 to replace the earned income credit, the child tax credit, and the deduction for dependents with a simplified family tax credit.

December 8, 2003

Mr. KUCINICH (for himself, Ms. LEE, and Mr. SANDERS) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to replace the earned income credit, the child tax credit, and the deduction for dependents with a simplified family tax credit.

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

SECTION 1. SHORT TITLE, ETC.

(a) SHORT TITLE- This Act may be cited as the `Progressive Tax Act of 2003'.

(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) TABLE OF CONTENTS-

Sec. 1. Short title, etc.

TITLE I--TAX RELIEF

Sec. 101. Simplified family credit.

Sec. 102. Child support included in gross income of recipient and allowed as deduction to payor.

Sec. 103. Refundable credit for payroll taxes.

TITLE II--PROVISIONS RELATING TO CORPORATE TAX

Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 201. Clarification of economic substance doctrine.

Sec. 202. Penalty for failing to disclose reportable transaction.

Sec. 203. Accuracy-related penalty for listed transactions and other reportable transactions having a significant tax avoidance purpose.

Sec. 204. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 205. Modifications of substantial understatement penalty for nonreportable transactions.

Sec. 206. Tax shelter exception to confidentiality privileges relating to taxpayer communications.

Sec. 207. Disclosure of reportable transactions.

Sec. 208. Modifications to penalty for failure to register tax shelters.

Sec. 209. Modification of penalty for failure to maintain lists of investors.

Sec. 210. Modification of actions to enjoin certain conduct related to tax shelters and reportable transactions.

Sec. 211. Understatement of taxpayer's liability by income tax return preparer.

Sec. 212. Penalty on failure to report interests in foreign financial accounts.

Sec. 213. Frivolous tax submissions.

Sec. 214. Regulation of individuals practicing before the Department of Treasury.

Sec. 215. Penalty on promoters of tax shelters.

Sec. 216. Statute of limitations for taxable years for which listed transactions not reported.

Sec. 217. Denial of deduction for interest on underpayments attributable to nondisclosed reportable and noneconomic substance transactions.

Subtitle B--Other Provisions

Sec. 221. Limitation on transfer or importation of built-in losses.

Sec. 222. Disallowance of certain partnership loss transfers.

Sec. 223. No reduction of basis under section 734 in stock held by partnership in corporate partner.

Sec. 224. Repeal of special rules for FASITS.

Sec. 225. Expanded disallowance of deduction for interest on convertible debt.

Sec. 226. Expanded authority to disallow tax benefits under section 269.

Sec. 227. Modifications of certain rules relating to controlled foreign corporations.

Sec. 228. Basis for determining loss always reduced by nontaxed portion of dividends.

Sec. 229. Affirmation of consolidated return regulation authority.

TITLE III--OTHER REVENUE OFFSETS

Sec. 301. Modification of individual income tax brackets and rates.

Sec. 302. Repeal of removal of limitations on itemized deductions and exemption amount.

Sec. 303. Individual capital gains and dividends treated as ordinary income.

Sec. 304. Restoration and modifications of estate tax; repeal of carryover basis.

Sec. 305. Extension of superfund, oil spill liability, and leaking underground storage tank taxes.

Sec. 306. Limitation on certain business provisions enacted in 2002 and 2003.

Sec. 307. Repeal of exclusion for parking transportation fringe benefit.

Sec. 308. Repeal of certain deductions relating to second homes.

TITLE I--TAX RELIEF

SEC. 101. SIMPLIFIED FAMILY CREDIT.

(a) IN GENERAL- Section 32 of the Internal Revenue Code of 1986 (relating to earned income credit) is amended to read as follows:

`SEC. 32. SIMPLIFIED FAMILY CREDIT.

`(a) ALLOWANCE OF CREDIT- In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to 50 percent of the taxpayer's modified adjusted gross income for the taxable year.

`(b) LIMITATIONS- For purposes of subsection (a)--

`(1) LIMITATION BASED ON QUALIFYING CHILDREN- The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the lesser of--

`(A) $2,000 multiplied by the number of qualifying children of the taxpayer, and

`(B) 50 percent of earned income.

`(2) LIMITATION BASED ON ADJUSTED GROSS INCOME-

`(A) IN GENERAL- The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds the threshold amount.

`(B) THRESHOLD AMOUNT- For purposes of subparagraph (A), the term `threshold amount' means--

`(i) $150,000 in the case of a joint return,

`(ii) $100,000 in the case of an individual who is not married, and

`(iii) $75,000 in the case of a married individual filing a separate return.

For purposes of this paragraph, marital status shall be determined under section 7703.

`(3) LIMITATION ON AMOUNT OF REFUNDABLE CREDIT-

`(A) IN GENERAL- The amount of the credit allowed under subsection (a) for a taxable year which is allowed under this subpart shall not exceed the earned income of the taxpayer for such year.

`(B) ALLOWANCE OF REMAINING AMOUNT OF CREDIT- The excess of--

`(i) the amount of the credit allowed under subsection (a), over

`(ii) the amount of the credit allowed under this subpart by reason of subparagraph (A),

shall be treated as a credit allowed under subpart B for such taxable year and not under this subpart.

`(c) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) ELIGIBLE INDIVIDUAL-

`(A) IN GENERAL- The term `eligible individual' means any individual who has a qualifying child for the taxable year.

`(B) INDIVIDUAL WHO IS QUALIFYING CHILD INELIGIBLE- If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.

`(C) EXCEPTION FOR INDIVIDUAL CLAIMING BENEFITS UNDER SECTION 911- The term `eligible individual' does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.

`(D) LIMITATION ON ELIGIBILITY OF NONRESIDENT ALIENS- The term `eligible individual' shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

`(E) IDENTIFICATION NUMBER REQUIREMENT- No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year--

`(i) such individual's taxpayer identification number, and

`(ii) if the individual is married (within the meaning of section 7703), the taxpayer identification number of such individual's spouse.

`(F) INDIVIDUALS WHO DO NOT INCLUDE TIN, ETC., OF ANY QUALIFYING CHILD- No credit shall be allowed under this section to any eligible individual who has one or more qualifying children if no qualifying child of such individual is taken into account under subsection (b) by reason of paragraph (2)(F).

`(2) QUALIFYING CHILD-

`(A) IN GENERAL- The term `qualifying child' means, with respect to any taxpayer for any taxable year, an individual--

`(i) who bears a relationship to the taxpayer described in subparagraph (B),

`(ii) who has the same principal place of abode as the taxpayer for more than one-half of such taxable year (or, in the case of a student, meets the requirements of subparagraph (F)), and

`(iii) who meets the age requirements of subparagraph (C).

`(B) RELATIONSHIP TEST-

`(i) IN GENERAL- An individual bears a relationship to the taxpayer described in this subparagraph if such individual is--

`(I) a son, daughter, stepson, or stepdaughter, or a descendant of any such individual,

`(II) a brother, sister, stepbrother, or stepsister, or a descendant of any such individual, who the taxpayer cares for as the taxpayer's own child, or

`(III) an eligible foster child of the taxpayer.

`(ii) MARRIED CHILDREN- Clause (i) shall not apply to any individual who has made a joint return with his spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.

`(iii) ELIGIBLE FOSTER CHILD- For purposes of clause (i), the term `eligible foster child' means an individual not described in subclause (I) or (II) of clause (i) who--

`(I) is placed with the taxpayer by an authorized placement agency, and

`(II) the taxpayer cares for as the taxpayer's own child.

`(iv) ADOPTION- For purposes of this subparagraph, a child who is legally adopted, or who is placed with the taxpayer by an authorized placement agency for adoption by the taxpayer, shall be treated as a child by blood.

`(C) AGE REQUIREMENTS- An individual meets the requirements of this subparagraph if such individual--

`(i) has not attained the age of 19 as of the close of the calendar year in which the taxable year of the taxpayer begins,

`(ii) is a student who has not attained the age of 24 as of the close of such calendar year, or

`(iii) is permanently and totally disabled (as defined in section 22(e)(3)) at any time during the taxable year.

`(D) IDENTIFICATION REQUIREMENTS-

`(i) IN GENERAL- A qualifying child shall not be taken into account under subsection (b) unless the taxpayer includes the name, age, and TIN of the qualifying child on the return of tax for the taxable year.

`(ii) OTHER METHODS- The Secretary may prescribe other methods for providing the information described in clause (i).

`(E) ABODE MUST BE IN THE UNITED STATES- The requirements of subparagraph (A)(ii) shall be met only if the principal place of abode is in the United States.

`(F) SPECIAL RULES RELATING TO STUDENTS- For purposes of this paragraph--

`(i) STUDENT DEFINED- The term `student' means an individual who during each of 5 calendar months during the calendar year in which the taxable year of the taxpayer begins--

`(I) is a full-time student at an educational organization described in section 170(b)(1)(A)(ii); or

`(II) is pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of an educational organization described in section 170(b)(1)(A)(ii) or of a State or political subdivision of a State.

`(ii) SUPPORT TEST- In the case of an individual who is a student, the individual meets the requirements of this subparagraph if such individual is a dependent (within the meaning of section 152).

`(G) 2 OR MORE CLAIMING QUALIFYING CHILD-

`(i) IN GENERAL- Except as provided in clause (ii), if (but for this subparagraph) an individual may be claimed, and is claimed, as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is--

`(I) a parent of the individual, or

`(II) if subclause (I) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.

`(ii) MORE THAN 1 CLAIMING CREDIT- If the parents claiming the credit with respect to any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of--

`(I) the parent with whom the child resided for the longest period of time during the taxable year, or

`(II) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

`(3) EARNED INCOME-

`(A) IN GENERAL- The term `earned income' means the sum of--

`(i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year,

`(ii) the amount of the taxpayer's net earnings from self-employment for the taxable year (within the meaning of section 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f),

`(iii) alimony or separate maintenance payments and child support received, plus

`(iv) amounts received under a Federal or State unemployment compensation law which are in the nature of unemployment compensation.

`(B) MODIFICATIONS OF EARNED INCOME- For purposes of subparagraph (A)--

`(i) the earned income of an individual shall be computed without regard to any community property laws,

`(ii) no amount received as a pension or annuity shall be taken into account,

`(iii) no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account, and

`(iv) no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account.

`(4) MODIFIED ADJUSTED GROSS INCOME- The term `modified adjusted gross income' means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

`(5) TREATMENT OF MILITARY PERSONNEL STATIONED OUTSIDE THE UNITED STATES- For purposes of subparagraphs (A)(ii) and (E) of paragraph (3), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term `extended active duty' means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

`(d) MARRIED INDIVIDUALS- In the case of an individual who is married (within the meaning of section

7703), this section shall apply only if a joint return is filed for the taxable year under section 6013.

`(e) TAXABLE YEAR MUST BE FULL TAXABLE YEAR- Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

`(f) INFLATION ADJUSTMENTS-

`(1) IN GENERAL- In the case of any taxable year beginning after 2004, each of the dollar amounts in subsections (b)(1)(A) and (b)(2)(B) 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 2003' for `calendar year 1992' in subparagraph (B) thereof.

`(2) ROUNDING- If any dollar amount in subsection (b)(1)(A) after being increased under paragraph (1) is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10, and if any dollar amount in subsection (b)(2)(B) after being increased under paragraph (1) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.

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