To amend the Internal Revenue Code of 1986 to give a deduction to corporations for dividends paid and to exclude dividends from gross income.

January 7, 2003

Mr. RYAN of Wisconsin introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to give a deduction to corporations for dividends paid and to exclude dividends from gross income.

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 `Double Taxation Elimination and Economic Growth Act of 2003'.

SEC. 2. DEDUCTION FOR DIVIDENDS PAID.

(a) IN GENERAL- Part VIII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to special deductions for corporations) is amended by adding at the end the following new section:

`SEC. 250. DIVIDENDS PAID BY CORPORATIONS.

`(a) IN GENERAL- In the case of a domestic corporation, there shall be allowed as a deduction for the taxable year an amount equal to the amount of dividends paid during the taxable year.

`(b) EXCEPTIONS- Subsection (a) shall not apply to--

`(1) any dividend from--

`(A) a regulated investment company,

`(B) a real estate investment trust, or

`(C) an S corporation,

`(2) any dividend of a corporation which for the taxable year of the corporation in which the distribution is made is a corporation exempt from tax under section 521 (relating to farmers' cooperative associations), and

`(3) any dividend described in section 404(k).

`(c) DISALLOWANCE OF DIVIDENDS RECEIVED DEDUCTION- In the case of the deduction allowed by subsection (a) with respect to any dividend, no deduction shall be allowed under any other provision of this part with respect to such dividend.'.

(b) CLERICAL AMENDMENT- The table of sections for part VIII of subchapter B of chapter 1 of such Code is amended by adding at the end the following new item:

`Sec. 250. Dividends paid by corporations.'.

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

SEC. 3. DIVIDENDS RECEIVED BY INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

(a) IN GENERAL- Subsection (h) of section 1 of the Internal Revenue Code of 1986 (relating to maximum capital gains rate) is amended by adding at the end the following new paragraph:

`(13) DIVIDENDS TAXED AS NET CAPITAL GAIN-

`(A) IN GENERAL- For purposes of this subsection, the term `net capital gain' means net capital gain (determined without regard to this paragraph) increased by qualified dividend income.

`(B) QUALIFIED DIVIDEND INCOME- For purposes of this paragraph, the term `qualified dividend income' means dividends received from domestic corporations during the taxable year other than--

`(i) any dividend from a corporation which for the taxable year of the corporation in which the distribution is made, or the preceding taxable year, is a corporation exempt from tax under section 501 or 521,

`(ii) any dividend from a real estate investment trust which, for the taxable year in which the dividend is paid, qualified under part II of subchapter M,

`(iii) any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.),

`(iv) any dividend described in section 404(k),

`(v) any dividend on any share of stock with respect to which the holding period requirements of section 246(c) are not met, and

`(vi) any dividend which the taxpayer takes into account as investment income under section 163(d)(4)(B).

`(C) SPECIAL RULE FOR NONRESIDENT ALIENS- In the case of a nonresident alien individual, subparagraph (A) shall apply only--

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

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

`(D) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES-

(b) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES-

(1) Subsection (a) of section 854 of such Code is amended by inserting `section 1(h)(13) (relating to maximum rate of tax on dividends) and' after `For purposes of'.

(2) Paragraph (1) of section 854(b) of such Code is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph:

`(B) MAXIMUM RATE UNDER SECTION 1(H)-

`(i) IN GENERAL- If the aggregate dividends received by a regulated investment company during any taxable year are less than 95 percent of its gross income, then, in computing the maximum rate under section 1(h)(13), rules similar to the rules of subparagraph (A) shall apply.

`(ii) GROSS INCOME- For purposes of clause (i), in the case of 1 or more sales or other dispositions of stock or securities, the term `gross income' includes only the excess of--

`(I) the net short-term capital gain from such sales or dispositions, over

`(II) the net long-term capital loss from such sales or dispositions.'.

(3) Subparagraph (C) of section 854(b)(1) of such Code, as redesignated by paragraph (2), is amended by striking `subparagraph (A)' and inserting `subparagraph (A) or (B)'.

(4) Paragraph (2) of section 854(b) of such Code is amended by inserting `the maximum rate under section 1(h)(13) and' after `for purposes of'.

(c) EXCLUSION OF DIVIDENDS FROM INVESTMENT INCOME- Subparagraph (B) of section 163(d)(4) of such Code is amended by adding at the end the following flush sentence:

`Such term shall include qualified dividend income (as defined in section 1(h)(13)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.'.

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

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