To repeal the sunset of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, and for other purposes.

January 7, 2003

Mr. KYL introduced the following bill; which was read twice and referred to the Committee on Finance

To repeal the sunset of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, and for other purposes.

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 `Contract With Investors'.

SEC. 2. REPEAL OF SUNSET.

Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) is repealed.

SEC. 3. ACCELERATION OF INDIVIDUAL INCOME TAX RATE REDUCTIONS.

(a) IN GENERAL- The table contained in section 1(i)(2) of the Internal Revenue Code of 1986 (relating to reductions in rates after June 30, 2001) is amended--

(1) by striking `and 2003',

(2) by striking `2004 and 2005' and inserting `2003', and

(3) by striking `2006' and inserting `2004'.

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 4. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES ACCELERATED TO 2005.

(a) ESTATE TAX REPEAL- Section 2210 of the Internal Revenue Code of 1986 (relating to termination) is amended--

(1) by striking `December 31, 2009' and inserting `December 31, 2004' both places it appears,

(2) by striking `January 1, 2010' in subsection (b) and inserting `January 1, 2005', and

(3) by striking `December 31, 2020' in subsection (b)(1) and inserting `December 31, 2014'.

(b) GENERATION-SKIPPING TRANSFER TAX REPEAL- Section 2664 of such Code (relating to termination) is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(c) CONFORMING AMENDMENTS-

(1) The table contained in section 2010(c) of such Code is amended--

(A) by striking `and 2005',

(B) by inserting a period after `$1,500,000', and

(C) by striking the last 2 items.

(2) Section 1014(f) of such Code is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(3) Section 1022 of such Code is amended--

(A) by striking `December 31, 2009' in the heading and in subsection (a)(1) and inserting `December 31, 2004', and

(B) in subsection (d)(4)(A)--

(i) by striking `2010' and inserting `2005',

(ii) by striking `2009' in clause (ii) and inserting `2004'.

(4) The table contained in section 2001(c)(2)(B) of such Code is amended--

(A) by inserting a period after `48 percent', and

(B) by striking the last 3 items.

(5) Section 2001(c)(2)(A) of such Code is amended by striking `2010' and inserting `2005'.

(6) The item in the table of sections for part II of subchapter O of chapter 1 of such Code relating to section 1022 is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(7) Section 501(d) of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(8) Paragraph (3) of section 511(f) of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(9) Paragraph (2) of section 521(e) of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) is amended by striking `December 31, 2009' and inserting `December 31, 2004'.

(10) Subsection (f) of section 542 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) is amended by striking `December 31, 2009' each place it appears and inserting `December 31, 2004'.

(d) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 5. REDUCTION OF MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.

(a) IN GENERAL- Section 1(h) 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 on taxable income reduced by the net capital gain, at the rates and in the same manner as if this subsection had not been enacted, plus

`(B) 10 percent of the taxpayer's net capital gain (or, if less, taxable income).

`(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 for the taxable year under section 163(d)(4)(B)(iii).'.

(b) MINIMUM TAX-

(1) IN GENERAL- Subparagraph (A) of section 55(b)(1) of the Internal Revenue Code of 1986 (relating to amount of tentative tax) is amended by redesignating clauses (ii) and (iii) as clauses (iii) and (iv), respectively, and by inserting after clause (i) the following new clause:

`(ii) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN- The amount determined under the first sentence of clause (i) shall not exceed the sum of--

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

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

(2) CONFORMING AMENDMENT- Section 55(b) of such Code is amended by striking paragraph (3).

(c) CONFORMING AMENDMENTS-

(1) Section 57(a)(7) of the Internal Revenue Code of 1986 is amended by striking the last sentence.

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

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

(B) 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) EFFECTIVE DATES-

(1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

(2) WITHHOLDING- The amendment made by subsection (c)(2) shall apply to amounts paid after December 31, 2002.

SEC. 6. INCREASE IN LIMITATION ON CAPITAL LOSSES APPLICABLE TO INDIVIDUALS.

(a) IN GENERAL- Paragraph (1) of section 1211(b) of the Internal Revenue Code of 1986 (relating to limitation on capital losses for taxpayers other than corporations) is amended by striking `$3,000 ($1,500' and inserting `$10,000 ($5,000'.

(b) ADJUSTMENT FOR INFLATION- Section 1211 of the Internal Revenue Code of 1986 (relating to limitation on capital losses) is amended by adding at the end the following new subsection:

`(c) ADJUSTMENT FOR INFLATION-

`(1) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2003, the $10,000 and $5,000 amounts contained in subsection (b)(1) shall each be increased by an amount equal to--

`(A)(i) such 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 by substituting `calendar year 2002' for `calendar year 1992' in subparagraph (B) thereof.

`(B) ROUNDING- If any increase determined under paragraph (1) is not a multiple of $5, such increase shall be rounded to the next highest multiple of $5.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 7. ACCELERATION OF INCREASE IN CONTRIBUTIONS TO CERTAIN RETIREMENT PLANS.

(a) IRAS-

(1) IN GENERAL- Subparagraph (A) of section 219(b)(5) of the Internal Revenue Code of 1986 (defining deductible amount) is amended to read as follows:

`(A) The deductible amount shall be $5,000.'.

(2) INFLATION ADJUSTMENT- Section 219(b)(5)(C) of such Code is amended--

(A) by striking `2008' and inserting `2003', and

(B) by striking `2007' and inserting `2002'.

(b) 401(k) PLANS-

(1) IN GENERAL- Paragraph (1) of section 402(g) of such Code is amended--

(A) by striking `the applicable dollar amount' in subparagraph (A) and inserting `$15,000',

(B) by striking subparagraph (B),

(C) by redesignating subparagraph (C) as subparagraph (B), and

(D) by striking `the applicable dollar amount under subparagraph (B)' in subparagraph (B) (as redesignated by subparagraph (C)) and inserting `the dollar amount in subparagraph (A)'.

(2) INFLATION ADJUSTMENT- Section 402(g)(4) of such Code is amended--

(A) by striking `2006' and inserting `2003', and

(B) by striking `2005' and inserting `2002'.

(3) CONFORMING AMENDMENT- Section 401(a)(30) of such Code is amended by striking `section 402(g)(1)(A)' and inserting `section 402(g)(1)'.

(c) 457 PLANS-

(1) IN GENERAL- Subparagraph (A) of section 457(b)(2) of such Code is amended by striking `the applicable dollar amount' and inserting `$15,000'.

(2) INFLATION ADJUSTMENT- Section 457(e)(15) of such Code is amended to read as follows:

`(15) COST-OF-LIVING ADJUSTMENT- In the case of taxable years beginning after December 31, 2003, the Secretary shall adjust the $15,000 amount under subsection (b)(2)(A) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2002, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 8. AGE FOR BEGINNING MANDATORY DISTRIBUTIONS INCREASED TO 75.

(a) QUALIFIED PENSION PLANS- Subparagraphs (B)(iv) and (C) of section 401(a)(9) of the Internal Revenue Code of 1986 (relating to required distributions) are each amended by striking `70 1/2 ' each place it appears and inserting `75'.

(b) INDIVIDUAL RETIREMENT PLANS-

(1) Paragraph (1) of section 219(d) of such Code is amended--

(A) by striking `70 1/2 ' in the text and inserting `75', and

(B) by striking `70 1/2 ' in the heading and inserting `75'.

(2) Subsection (b) of section 408 of such Code is amended by striking `70 1/2 ' and inserting `75'.

(c) ROTH IRA'S- Paragraph (4) of section 408A(c) of such Code is amended--

(1) by striking `70 1/2 ' in the text and inserting `75', and

(2) by striking `70 1/2 ' in the heading and inserting `75'.

(d) SECTION 457 PLANS- Clause (i) of section 457(d)(1)(A) of such Code is amended by striking `70 1/2 ' and inserting `75'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2002.

SEC. 9. EXCLUSION OF DIVIDEND INCOME FROM TAX.

(a) IN GENERAL- Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to amounts specifically excluded from gross income) is amended by inserting after section 115 the following new section:

`SEC. 116. EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.

`(a) EXCLUSION FROM GROSS INCOME- Gross income does not include 100 percent of the amounts received during the taxable year by an individual as dividends from domestic, publicly traded, C corporations (within the meaning of section 1297(f)(3)).

`(b) CERTAIN DIVIDENDS EXCLUDED- Subsection (a) shall not apply to any dividend from a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organization) or section 521 (relating to farmers' cooperative associations).

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

`(1) EXCLUSION NOT TO APPLY TO CAPITAL GAIN DIVIDENDS FROM REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS- For treatment of capital gain dividends, see sections 854(a) and 857(c).

`(2) CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR EXCLUSION- In the case of a nonresident alien individual, subsection (a) shall apply only--

`(A) in determining the tax imposed for the taxable year pursuant to section 871(b)(1) and only in respect of dividends which are effectively connected with the conduct of a trade or business within the United States, or

`(B) in determining the tax imposed for the taxable year pursuant to section 877(b).

`(3) DIVIDENDS FROM EMPLOYEE STOCK OWNERSHIP PLANS- Subsection (a) shall not apply to any dividend described in section 404(k).'.

(b) CONFORMING AMENDMENTS-

(1)(A) Subparagraph (A) of section 135(c)(4) of such Code is amended by inserting `116,' before `137'.

(B) Subsection (d) of section 135 of such Code is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:

`(4) COORDINATION WITH SECTION 116- This section shall be applied before section 116.'.

(2) Subsection (c) of section 584 of such Code is amended by adding at the end thereof the following new flush sentence:

`The proportionate share of each participant in the amount of dividends received by the common trust fund

and to which section 116 applies shall be considered for purposes of such section as having been received by such participant.'.

(3) Subsection (a) of section 643 of such Code is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:

`(7) DIVIDENDS- There shall be included the amount of any dividends excluded from gross income pursuant to section 116.'.

(4) Section 854(a) of such Code is amended by inserting `section 116 (relating to exclusion of dividends received by individuals) and' after `For purposes of'.

(5) Section 857(c) of such Code is amended to read as follows:

`(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RECEIVED FROM REAL ESTATE INVESTMENT TRUSTS-

`(1) TREATMENT FOR SECTION 116- For purposes of section 116 (relating to exclusion of dividends received by individuals), a capital gain dividend (as defined in subsection (b)(3)(C)) received from a real estate investment trust which meets the requirements of this part shall not be considered as a dividend.

`(2) TREATMENT FOR SECTION 243- For purposes of section 243 (relating to deductions for dividends received by corporations), a dividend received from a real estate investment trust which meets the requirements of this part shall not be considered as a dividend.'.

(6) The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 115 the following new item:

`Sec. 116. Exclusion of dividends received by individuals.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 10. SENSE OF THE SENATE REGARDING A CONTRACT WITH INVESTORS.

It is the sense of the Senate that--

(1) Congress should pass legislation to safeguard American workers' pension and retirement accounts,

(2) Congress should modernize this country's international tax provisions in order to permit United States companies to better compete internationally,

(3) Congress should repeal redundant, outdated, and unscientific regulatory burdens on investors and United States companies and perform a cost benefit analysis before enacting new burdens on United States businesses and investors,

(4) Congress should enact meaningful tort reform, and

(5) Congress should enact meaningful tax reform that simplifies the Federal tax code and reduces the cost recovery periods that businesses are forced to use to recover the costs of capital.

END