To amend the Internal Revenue Code of 1986 to allow a deduction for the old-age, survivors, and disability insurance taxes paid by employees and self-employed individuals, and for other purposes.

February 13, 2003

Mr. ENSIGN (for himself and Mrs. HUTCHISON) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to allow a deduction for the old-age, survivors, and disability insurance taxes paid by employees and self-employed individuals, 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 `Payroll Tax Deduction Act'.

SEC. 2. DEDUCTION FOR OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE TAXES OF EMPLOYEES AND SELF-EMPLOYED INDIVIDUALS.

(a) TAXES OF EMPLOYEES-

(1) DEDUCTION ALLOWED IN ARRIVING AT ADJUSTED GROSS INCOME- Section 62(a) of the Internal Revenue Code of 1986 (defining adjusted gross income) is amended by inserting after paragraph (18) the following new paragraph:

`(19) EMPLOYEES' OASDI TAXES- The deduction allowed by section 164(g).'.

(2) DETERMINATION OF DEDUCTION- Section 164 of such Code (relating to deduction for taxes) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

`(g) EMPLOYEES' OASDI TAXES-

`(1) IN GENERAL- In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to the sum of--

`(A) the taxes imposed by section 3101(a) for the taxable year, and

`(B) the taxes imposed by section 3201(a) for the taxable year but only to the extent attributable to the percentage in effect under section 3101(a).

`(2) SPECIAL RULE FOR CERTAIN AGREEMENTS- For purposes of paragraph (1), taxes imposed by section 3101(a) shall include amounts equivalent to such taxes imposed with respect to remuneration covered by--

`(A) an agreement under section 218 of the Social Security Act, or

`(B) an agreement under section 3121(l) (relating to agreements entered into by American employers with respect to foreign affiliates).

`(3) COORDINATION WITH SPECIAL REFUND OF SOCIAL SECURITY TAXES- Taxes shall not be taken into account under paragraph (1) to the extent the taxpayer is entitled to a special refund of such taxes under section 6413(c).

`(4) COORDINATION WITH EARNED INCOME CREDIT- No deduction shall be allowed under paragraph (1) for any taxable year if the individual elects to claim the earned income credit under section 32 for the taxable year.'.

(3) CONFORMING AMENDMENT- Subsection (a) of section 275 of such Code is amended in the matter following paragraph (6) by inserting `or 164(g)' after `164(f)'.

(b) DEDUCTION FOR SELF-EMPLOYED INDIVIDUALS-

(1) IN GENERAL- Paragraph (1) of section 164(f) of the Internal Revenue Code of 1986 (relating to deduction for one-half of self-employment taxes) is amended to read as follows:

`(1) IN GENERAL- In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to the sum of--

`(A) the taxes imposed by section 1401(a) for such taxable year, plus

`(B) 50 percent of the taxes imposed by section 1401(b) for such taxable year.

In the case of an individual who elects to claim the earned income credit under section 32 for the taxable year, only 50 percent of the taxes described in subparagraph (A) shall be taken into account.'.

(2) CONFORMING AMENDMENTS-

(A) Section 32(a)(1) of such Code is amended by inserting `who elects the application of this section' after `eligible individual'.

(B) The heading for section 164(f) of such Code is amended by striking `ONE-HALF' and inserting `PORTION'.

(C) Section 1402(a)(12) of such Code is amended--

(i) by striking `one-half' the first place it appears and inserting `portion', and

(ii) by striking subparagraph (B) and inserting:

`(B) a percentage equal to the sum for such year of the rate of tax under section 1401(a) and one-half of the rate of tax under section 1401(b);'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

END