< Back to H.R. 2 (108th Congress, 2003–2004)

Text of the Jobs and Growth Tax Relief Reconciliation Act of 2003

This bill was enacted after being signed by the President on May 28, 2003. The text of the bill below is as of May 8, 2003 (Reported by House Committee).

This is not the latest text of this bill.

Source: GPO

HR 2 RH

Union Calendar No. 49

108th CONGRESS

1st Session

H. R. 2

[Report No. 108-94]

To amend the Internal Revenue Code of 1986 to provide additional tax incentives to encourage economic growth.

IN THE HOUSE OF REPRESENTATIVES

February 27, 2003

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

May 8, 2003

Additional sponsors: Mr. DeLay, Mr. Blunt, Ms. Pryce of Ohio, Mr. Cox, Mr. Reynolds, Mr. Dreier, Mr. Doolittle, Mr. Kingston, Mr. Crane, Mr. Shaw, Mr. Herger, Mr. McCrery, Mr. Camp, Mr. Ramstad, Mr. Sam Johnson of Texas, Ms. Dunn, Mr. Portman, Mr. Hayworth, Mr. Hulshof, Mr. McInnis, Mr. Lewis of Kentucky, Mr. Foley, Mr. Brady of Texas, Mr. Ryan of Wisconsin, Mr. Cantor, Mr. Hensarling, Mr. Pitts, Mr. McKeon, Mr. Wilson of South Carolina, Mr. DeMint, Mr. Fossella, Mr. McCotter, Ms. Ginny Brown-Waite of Florida, Mr. Boehner, Mr. Franks of Arizona, Mr. Keller, Mr. Gary G. Miller of California, Mr. Collins, Mr. Isakson, Mr. Terry, Mr. Garrett of New Jersey, Mr. Kolbe, Mr. Beauprez, Mr. Sessions, Mr. CHOCOLA, Mr. Pearce, Mr. Barrett of South Carolina, Mr. Brown of South Carolina, Ms. Hart, Mr. Ryun of Kansas, and Mr. Ose

Deleted sponsor: Mrs. Musgrave (added April 1, 2003; deleted May 7, 2003)

May 8, 2003

Reported with amendments, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on February 27, 2003]


A BILL

To amend the Internal Revenue Code of 1986 to provide additional tax incentives to encourage economic growth.

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

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Jobs and Growth Reconciliation 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- The table of contents of this Act is as follows:

      Sec. 1. Short title; references; table of contents.

TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

      Sec. 101. Acceleration of increase in child tax credit.

      Sec. 102. Acceleration of 15-percent individual income tax rate bracket expansion for married taxpayers filing joint returns.

      Sec. 103. Acceleration of increase in standard deduction for married taxpayers filing joint returns.

      Sec. 104. Acceleration of 10-percent individual income tax rate bracket expansion.

      Sec. 105. Acceleration of reduction in individual income tax rates.

      Sec. 106. Minimum tax relief to individuals.

TITLE II--GROWTH INCENTIVES FOR BUSINESS

      Sec. 201. Increase and extension of bonus depreciation.

      Sec. 202. Increased expensing for small business.

      Sec. 203. 5-year carryback of certain net operating losses.

TITLE III--REDUCTIONS IN TAXES ON DIVIDENDS AND CAPITAL GAINS

      Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-year holding period requirement.

      Sec. 302. Dividends of individuals taxed at capital gain rates.

      Sec. 303. Sunset of title.

TITLE IV--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

      Sec. 401. Time for payment of corporate estimated taxes.

TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.

    (a) IN GENERAL- The items relating to calendar years 2001 through 2008 in the table contained in paragraph (2) of section 24(a) (relating to per child amount) are amended to read as follows:

‘2003, 2004, 2005

$1,000

2006, 2007, or 2008

700’.

    (b) ADVANCE PAYMENT OF PORTION OF INCREASED CREDIT IN 2003-

      (1) IN GENERAL- Subchapter B of chapter 65 (relating to abatements, credits, and refunds) is amended by inserting after section 6428 the following new section:

‘SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD CREDIT FOR 2003.

    ‘(a) IN GENERAL- Each taxpayer who claimed a credit under section 24 on the return for the taxpayer’s first taxable year beginning in 2002 shall be treated as having made a payment against the tax imposed by chapter 1 for such taxable year in an amount equal to the child tax credit refund amount (if any) for such taxable year.

    ‘(b) CHILD TAX CREDIT REFUND AMOUNT- For purposes of this section, the child tax credit refund amount is the amount by which the aggregate credits allowed under part IV of subchapter A of chapter 1 for such first taxable year would have been increased if--

      ‘(1) the per child amount under section 24(a)(2) for such year were $1,000,

      ‘(2) only qualifying children (as defined in section 24(c)) of the taxpayer for such year who had not attained age 17 as of December 31, 2003, were taken into account, and

      ‘(3) section 24(d)(1)(B)(ii) did not apply.

    ‘(c) TIMING OF PAYMENTS- In the case of any overpayment attributable to this section, the Secretary shall, subject to the provisions of this title, refund or credit such overpayment as rapidly as possible and, to the extent practicable, before October 1, 2003. No refund or credit shall be made or allowed under this section after December 31, 2003.

    ‘(d) COORDINATION WITH CHILD TAX CREDIT-

      ‘(1) IN GENERAL- The amount of credit which would (but for this subsection and section 26) be allowed under section 24 for the taxpayer’s first taxable

year beginning in 2003 shall be reduced (but not below zero) by the payments made to the taxpayer under this section. Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1).

      ‘(2) JOINT RETURNS- In the case of a payment under this section with respect to a joint return, half of such payment shall be treated as having been made to each individual filing such return.

    ‘(e) NO INTEREST- No interest shall be allowed on any overpayment attributable to this section.’.

      (2) CLERICAL AMENDMENT- The table of sections for subchapter B of chapter 65 is amended by adding at the end the following new item:

‘Sec. 6429. Advance payment of portion of increased child credit for 2003.’.

    (c) EFFECTIVE DATES-

      (1) SUBSECTION (a)- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2002.

      (2) SUBSECTION (b)- The amendments made by subsection (b) shall take effect on the date of the enactment of this Act.

SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS FILING JOINT RETURNS.

    (a) IN GENERAL- The item relating to 2005 in the table contained in subparagraph (B) of section 1(f)(8) (relating to applicable percentage) is amended to read as follows:

          ‘2003, 2004, and 2005

--200’.

    (b) CONFORMING AMENDMENTS-

      (1) Section 1(f)(8)(A) is amended by striking ‘2004’ and inserting ‘2002’.

      (2) Section 302(c) of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking ‘2004’ and inserting ‘2002’.

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

SEC. 103. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR MARRIED TAXPAYERS FILING JOINT RETURNS.

    (a) IN GENERAL- The item relating to 2005 in the table contained in paragraph (7) of section 63(c) (relating to applicable percentage) is amended to read as follows:

          ‘2003, 2004, and 2005

--200’.

    (b) CONFORMING AMENDMENT- Section 301(d) of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking ‘2004’ and inserting ‘2002’.

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

SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET EXPANSION.

    (a) IN GENERAL- Clause (i) of section 1(i)(1)(B) (relating to the initial bracket amount) is amended by striking ‘($12,000 in the case of taxable years beginning before January 1, 2008)’ and inserting ‘($12,000 in the case of taxable years beginning after December 31, 2005, and before January 1, 2008)’.

    (b) INFLATION ADJUSTMENT- Subparagraph (C) of section 1(i)(1) is amended to read as follows:

        ‘(C) INFLATION ADJUSTMENT- In prescribing the tables under subsection (f) which apply with respect to taxable years beginning in calendar years after 2000--

          ‘(i) the Secretary shall make no adjustment to the $12,000 initial bracket amount for any taxable year,

          ‘(ii)(I) the Secretary shall make no adjustment to the $14,000 initial bracket amount for any taxable year beginning before January 1, 2004,

          ‘(II) the cost-of-living adjustment used in making adjustments to the $14,000 initial bracket amount for any taxable year beginning during 2004 or 2005 shall be determined under subsection (f)(3) by substituting ‘2002’ for ‘1992’ in subparagraph (B) thereof, and

          ‘(III) the cost-of-living adjustment used in making adjustments to the $14,000 initial bracket amount for any taxable year beginning after December 31, 2008, shall be determined under subsection (f)(3) by substituting ‘2007’ for ‘1992’ in subparagraph (B) thereof, and

          ‘(iii) the adjustments under clause (ii) shall not apply to the amount referred to in subparagraph (B)(iii).

        If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.’

    (c) EFFECTIVE DATE-

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

      (2) TABLES FOR 2003- The Secretary of the Treasury shall modify each table which has been prescribed under section 1(f) of the Internal Revenue Code of 1986 for taxable years beginning in 2003 and which relates to the amendment made by this section to reflect such amendment.

SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX RATES.

    (a) IN GENERAL- The table in paragraph (2) of section 1(i) (relating to reductions in rates after June 30, 2001) is amended to read as follows:

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
           ‘In the case of taxable years beginning during calendar year: The corresponding percentages shall be substituted for the following percentages:                     
                                                                                                                                                       28%   31%   36%   39.6% 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           2001                                                                             27.5% 30.5% 35.5%   39.1% 
                                                           2002                                                                             27.0% 30.0% 35.0%   38.6% 
                                            2003 and thereafter                                                                             25.0% 28.0% 33.0% 35.0%’. 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.

    (a) IN GENERAL-

      (1) Subparagraph (A) of section 55(d)(1) is amended by striking ‘$49,000 in the case of taxable years beginning in 2001, 2002, 2003, and 2004’ and

inserting ‘$64,000 in the case of taxable years beginning in 2003, 2004, and 2005’.

      (2) Subparagraph (B) of section 55(d)(1) is amended by striking ‘$35,750 in the case of taxable years beginning in 2001, 2002, 2003, and 2004’ and inserting ‘$43,250 in the case of taxable years beginning in 2003, 2004, and 2005’.

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

TITLE II--GROWTH INCENTIVES FOR BUSINESS

SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.

    (a) IN GENERAL- Section 168(k) (relating to special allowance for certain property acquired after September 10, 2001, and before September 11, 2004) is amended by adding at the end the following new paragraph:

      ‘(4) 50-PERCENT BONUS DEPRECIATION FOR CERTAIN PROPERTY-

        ‘(A) IN GENERAL- In the case of 50-percent bonus depreciation property--

          ‘(i) paragraph (1)(A) shall be applied by substituting ‘50 percent’ for ‘30 percent’, and

          ‘(ii) except as provided in paragraph (2)(C), such property shall be treated as qualified property for purposes of this subsection.

        ‘(B) 50-PERCENT BONUS DEPRECIATION PROPERTY- For purposes of this subsection, the term ‘50-percent bonus depreciation property’ means property described in paragraph (2)(A)(i)--

          ‘(i) the original use of which commences with the taxpayer after May 5, 2003,

          ‘(ii) which is acquired by the taxpayer after May 5, 2003, and before January 1, 2006, but only if no written binding contract for the acquisition was in effect before May 6, 2003, and

          ‘(iii) which is placed in service by the taxpayer before January 1, 2006, or, in the case of property described in paragraph (2)(B) (as modified by subparagraph (C) of this paragraph), before January 1, 2007.

        ‘(C) SPECIAL RULES- Rules similar to the rules of subparagraphs (B) and (D) of paragraph (2) shall apply for purposes of this paragraph; except that references to September 10, 2001, shall be treated as references to May 5, 2003.

        ‘(D) AUTOMOBILES- Paragraph (2)(E) shall be applied by substituting ‘$9,200’ for ‘$4,600’ in the case of 50-percent bonus depreciation property.

        ‘(E) ELECTION OF 30 PERCENT BONUS- If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, subparagraph (A)(i) shall not apply to all property in such class placed in service during such taxable year.’

    (b) EXTENSION OF PLACED IN SERVICE DATES, ETC. FOR 30-PERCENT BONUS DEPRECIATION PROPERTY-

      (1) IN GENERAL- Clause (iv) of section 168(k)(2)(A) is amended--

        (A) by striking ‘January 1, 2005’ and inserting ‘January 1, 2006’, and

        (B) by striking ‘January 1, 2006’ (as in effect before the amendment made by subparagraph (A)) and inserting ‘January 1, 2007’.

      (2) PORTION OF BASIS TAKEN INTO ACCOUNT-

        (A) Subparagraphs (B)(ii) and (D)(i) of section 168(k)(2) are each amended by striking ‘September 11, 2004’ each place it appears in the text and inserting ‘January 1, 2006’.

        (B) Clause (ii) of section 168(k)(2)(B) is amended by striking ‘PRE-SEPTEMBER 11, 2004’ in the heading and inserting ‘PRE-JANUARY 1, 2006’.

      (3) ACQUISITION DATE- Clause (iii) of section 168(k)(2)(A) is amended by striking ‘September 11, 2004’ each place it appears and inserting ‘January 1, 2006’.

      (4) ELECTION- Clause (iii) of section 168(k)(2)(C) is amended by adding at the end the following: ‘The preceding sentence shall be applied separately with respect to property treated as qualified property by paragraph (4) and other qualified property.’

    (c) CONFORMING AMENDMENTS-

      (1) The subsection heading for section 168(k) is amended by striking ‘SEPTEMBER 11, 2004’ and inserting ‘JANUARY 1, 2006’.

      (2) The heading for clause (i) of section 1400L(b)(2)(C) is amended by striking ‘30-PERCENT ADDITIONAL ALLOWABLE PROPERTY’ and inserting ‘BONUS DEPRECIATION PROPERTY UNDER SECTION 168(k)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

    (a) IN GENERAL- Paragraph (1) of section 179(b) (relating to dollar limitation) is amended to read as follows:

      ‘(1) DOLLAR LIMITATION- The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $25,000 ($100,000 in the case of taxable years beginning after 2002 and before 2008).’.

    (b) INCREASE IN QUALIFYING INVESTMENT AT WHICH PHASEOUT BEGINS- Paragraph (2) of section 179(b) (relating to reduction in limitation) is amended by inserting ‘($400,000 in the case of taxable years beginning after 2002 and before 2008)’ after ‘$200,000’.

    (c) OFF-THE-SHELF COMPUTER SOFTWARE- Paragraph (1) of section 179(d) (defining section 179 property) is amended to read as follows:

      ‘(1) SECTION 179 PROPERTY- For purposes of this section, the term ‘section 179 property’ means property--

        ‘(A) which is--

          ‘(i) tangible property (to which section 168 applies), or

          ‘(ii) computer software (as defined in section 197(e)(3)(B)) which is described in section 197(e)(3)(A)(i), to which section 167 applies, and which is placed in service in a taxable year beginning after 2002 and before 2008,

        ‘(B) which is section 1245 property (as defined in section 1245(a)(3)), and

        ‘(C) which is acquired by purchase for use in the active conduct of a trade or business.

      Such term shall not include any property described in section 50(b) and shall not include air conditioning or heating units.’.

    (d) ADJUSTMENT OF DOLLAR LIMIT AND PHASEOUT THRESHOLD FOR INFLATION- Subsection (b) of section 179 (relating to limitations) is amended by adding at the end the following new paragraph:

      ‘(5) INFLATION ADJUSTMENTS-

        ‘(A) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2003 and before 2008, the $100,000 and $400,000 amounts in paragraphs (1) and (2) shall each be increased by an amount equal to--

          ‘(i) such dollar 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-

          ‘(i) DOLLAR LIMITATION- If the amount in paragraph (1) as increased under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.

          ‘(ii) PHASEOUT AMOUNT- If the amount in paragraph (2) as increased under subparagraph (A) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.’.

    (e) REVOCATION OF ELECTION- Paragraph (2) of section 179(c) (relating to election irrevocable) is amended to read as follows:

      ‘(2) REVOCATION OF ELECTION- An election under paragraph (1) with respect to any taxable year beginning after 2002 and before 2008, and any specification contained in any such election, may be revoked by the taxpayer with respect to any property. Such revocation, once made, shall be irrevocable.’.

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

SEC. 203. 5-YEAR CARRYBACK OF CERTAIN NET OPERATING LOSSES.

    (a) IN GENERAL- Subparagraph (H) of section 172(b)(1) is amended--

      (1) by inserting ‘5-YEAR CARRYBACK OF CERTAIN LOSSES- ’ after ‘(H)’, and

      (2) by striking ‘or 2002’ and inserting ‘, 2002, 2003, 2004 or 2005’.

    (b) TEMPORARY SUSPENSION OF 90 PERCENT LIMIT ON CERTAIN NOL CARRYBACKS- Subclause (I) of section 56(d)(1)(A)(ii) is amended--

      (1) by striking ‘or 2002’ and inserting ‘, 2002, 2003, 2004, or 2005’, and

      (2) by striking ‘and 2002’ and inserting ‘, 2002, 2003, 2004, or 2005’.

    (c) TECHNICAL CORRECTIONS-

      (1) Subparagraph (H) of section 172(b)(1) is amended by striking ‘a taxpayer which has’.

      (2) Section 102(c)(2) of the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147) is amended by striking ‘before January 1, 2003’ and inserting ‘after December 31, 1990’.

      (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended by striking ‘attributable to carryovers’.

      (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--

        (i) by striking ‘for taxable years’ and inserting ‘from taxable years’, and

        (ii) by striking ‘carryforwards’ and inserting ‘carryovers’.

    (d) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to net operating losses for taxable years ending after December 31, 2002.

      (2) TECHNICAL CORRECTIONS- The amendments made by subsection (c) shall take effect as if included in the amendments made by section 102 of the Job Creation and Worker Assistance Act of 2002.

      (3) ELECTION- In the case of a net operating loss for a taxable year ending during 2003--

        (A) any election made under section 172(b)(3) of such Code may (notwithstanding such section) be revoked before November 1, 2003, and

        (B) any election made under section 172(j) of such Code shall (notwithstanding such section) be treated as timely made if made before November 1, 2003.

TITLE III--REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT.

    (a) IN GENERAL-

      (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking ‘10 percent’ and inserting ‘5 percent’.

      (2) The following sections are each amended by striking ‘20 percent’ and inserting ‘15 percent’:

        (A) Section 1(h)(1)(C).

        (B) Section 55(b)(3)(C).

        (C) Section 1445(e)(1).

        (D) The second sentence of section 7518(g)(6)(A).

        (E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936.

    (b) CONFORMING AMENDMENTS-

      (1) Section 1(h) is amended--

        (A) by striking paragraphs (2) and (9),

        (B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and

        (C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively.

      (2) Paragraph (3) of section 55(b) is amended by striking ‘In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).’.

      (3) Paragraph (7) of section 57(a) is amended--

        (A) by striking ‘42 percent’ the first place it appears and inserting ‘7 percent’, and

        (B) by striking the last sentence.

    (c) TRANSITIONAL RULES FOR TAXABLE YEARS WHICH INCLUDE MAY 6, 2003- For purposes of applying section 1(h) of the Internal Revenue Code of 1986 in the case of a taxable year which includes May 6, 2003--

      (1) The amount of tax determined under subparagraph (B) of section 1(h)(1) of such Code shall be the sum of--

        (A) 5 percent of the lesser of--

          (i) the net capital gain determined by taking into account only gain or loss properly taken into account for the portion of the taxable year on or after May 6, 2003 (determined without regard to collectibles gain or loss, gain described in section 1(h)(6)(A)(i) of such Code, and section 1202 gain), or

          (ii) the amount on which a tax is determined under such subparagraph (without regard to this subsection),

        (B) 8 percent of the lesser of--

          (i) the qualified 5-year gain (as defined in section 1(h)(9) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act) properly taken into account for the portion of the taxable year before May 6, 2003, over

          (ii) the excess (if any) of--

            (I) the amount on which a tax is determined under such subparagraph (without regard to this subsection), over

            (II) the amount on which a tax is determined under subparagraph (A), plus

        (C) 10 percent of the excess (if any) of--

          (i) the amount on which a tax is determined under such subparagraph (without regard to this subsection), over

          (ii) the sum of the amounts on which a tax is determined under subparagraphs (A) and (B).

      (2) The amount of tax determined under subparagraph (C) of section (1)(h)(1) of such Code shall be the sum of--

        (A) 15 percent of the lesser of--

          (i) the excess (if any) of the amount of net capital gain determined under subparagraph (A)(i) of paragraph (1) of this subsection over the amount on which a tax is determined under subparagraph (A) of paragraph (1) of this subsection, or

          (ii) the amount on which a tax is determined under such subparagraph (C) (without regard to this subsection), plus

        (B) 20 percent of the excess (if any) of--

          (i) the amount on which a tax is determined under such subparagraph (C) (without regard to this subsection), over

          (ii) the amount on which a tax is determined under subparagraph (A) of this paragraph.

      (3) For purposes of applying section 55(b)(3) of such Code, rules similar to the rules of paragraphs (1) and (2) of this subsection shall apply.

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

      (5) For purposes of applying section 1(h)(11) of such Code, as added by section 302 of this Act, to this subsection, dividends which are qualified dividend income shall be treated as gain properly taken into account for the portion of the taxable year on or after May 6, 2003.

      (6) Terms used in this subsection which are also used in section 1(h) of such Code shall have the respective meanings that such terms have in such section.

    (d) EFFECTIVE DATES-

      (1) IN GENERAL- Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years ending on or after May 6, 2003.

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

      (3) SMALL BUSINESS STOCK- The amendments made by subsection (b)(3) shall apply to dispositions on or after May 6, 2003.

SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

    (a) IN GENERAL- Section 1(h) (relating to maximum capital gains rate), as amended by section 301, is amended by adding at the end the following new paragraph:

      ‘(11) 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--

          ‘(i) IN GENERAL- The term ‘qualified dividend income’ means dividends received during the taxable year from domestic corporations.

          ‘(ii) CERTAIN DIVIDENDS EXCLUDED- Such term shall not include--

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

            ‘(III) any dividend described in section 404(k).

          ‘(iii) EXCLUSION OF CERTAIN DIVIDENDS- Such term shall not include any dividend on any share of stock--

            ‘(I) with respect to which the holding period requirements of section 246(c) are not met, or

            ‘(II) to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.

        ‘(C) SPECIAL RULES-

          ‘(i) AMOUNTS TAKEN INTO ACCOUNT AS INVESTMENT INCOME- Qualified dividend income shall not include any amount which the taxpayer takes into account as investment income under section 163(d)(4)(B).

          ‘(ii) EXTRAORDINARY DIVIDENDS- If an individual receives, with respect to any share of stock, qualified dividend income from 1 or more dividends which are extraordinary dividends (within the meaning of section 1059(c)), any loss on the sale or exchange of such share shall, to the extent of such dividends, be treated as long-term capital loss.

          ‘(iii) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS- A dividend received from a regulated investment company or a real estate investment trust shall be subject to the limitations prescribed in sections 854 and 857.’

    (b) EXCLUSION OF DIVIDENDS FROM INVESTMENT INCOME- Subparagraph (B) of section 163(d)(4) (defining net investment income) is amended by adding at the end the following flush sentence:

        ‘Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.’

    (c) TREATMENT OF DIVIDENDS FROM REGULATED INVESTMENT COMPANIES-

      (1) Subsection (a) of section 854 (relating to dividends received from regulated investment companies) is amended by inserting ‘section 1(h)(11) (relating to maximum rate of tax on dividends and interest) and’ after ‘For purposes of’.

      (2) Paragraph (1) of section 854(b) (relating to other dividends) 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)(11), 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), as redesignated by paragraph (2), is amended by striking ‘subparagraph (A)’ and inserting ‘subparagraph (A) or (B)’.

      (4) Paragraph (2) of section 854(b) is amended by inserting ‘the maximum rate under section 1(h)(11) and’ after ‘for purposes of’.

      (5) Subsection (b) of section 854 is amended by adding at the end the following new paragraph:

      ‘(5) COORDINATION WITH SECTION 1(h)(11)- For purposes of paragraph (1)(B), an amount shall be treated as a dividend only if the amount is qualified dividend income (within the meaning of section 1(h)(11)(B)).’

    (d) TREATMENT OF DIVIDENDS RECEIVED FROM REAL ESTATE INVESTMENT TRUSTS- Section 857(c) (relating to restrictions applicable to dividends received from real estate investment trusts) is amended to read as follows:

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

      ‘(1) 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 a dividend.

      ‘(2) Section 1(h)(11)- For purposes of section 1(h)(11) (relating to maximum rate of tax on dividends), rules similar to the rules of section 854(b)(1)(B) shall apply to dividends received from a real estate trust which meets the requirements of this part.’

    (e) CONFORMING AMENDMENTS-

      (1) Paragraph (3) of section 1(h), as redesignated by section 301, is amended to read as follows:

      ‘(3) ADJUSTED NET CAPITAL GAIN- For purposes of this subsection, the term ‘adjusted net capital gain’ means the sum of--

        ‘(A) net capital gain (determined without regard to paragraph (11)) reduced (but not below zero) by the sum of--

          ‘(i) unrecaptured section 1250 gain, and

          ‘(ii) 28-percent rate gain, plus

        ‘(B) qualified dividend income (as defined in paragraph (11)).’

      (2) Subsection (f) of section 301 is amended adding at the end the following new paragraph:

      ‘(4) For taxation of dividends received by individuals at capital gain rates, see section 1(h)(11).’

      (3) Paragraph (1) of section 306(a) is amended by adding at the end the following new subparagraph:

        ‘(D) TREATMENT AS DIVIDEND- For purposes of section l(h)(11), any amount treated as ordinary income under this paragraph shall be

treated as a dividend received from the corporation.’

      (4)(A) Subpart C of part II of subchapter C of chapter 1 (relating to collapsible corporations) is repealed.

      (B)(i) Section 338(h) is amended by striking paragraph (14).

      (ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are each amended by striking ‘, 341(e)(12),’.

      (iii) The table of subparts for part II of subchapter C of chapter 1 is amended by striking the item related to subpart C.

      (5) Section 531 is amended by striking ‘equal to’ and all that follows and inserting ‘equal to 15 percent of the accumulated taxable income.’

      (6) Section 541 is amended by striking ‘equal to’ and all that follows and inserting ‘equal to 15 percent of the undistributed personal holding company income.’

      (7) Section 584(c) is amended by adding at the end 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 1(h)(11) applies shall be considered for purposes of such paragraph as having been received by such participant.’

      (8) Paragraph (5) of section 702(a) is amended to read as follows:

      ‘(5) dividends with respect to which section 1(h)(11) or part VII of subchapter B applies,’.

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

SEC. 303. SUNSET OF TITLE.

    All provisions of, and amendments made by, this title shall not apply to taxable years beginning after December 31, 2012, and the Internal Revenue Code of 1986 shall be applied and administered to such years as if such provisions and amendments had never been enacted.

TITLE IV--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986, 52 percent of the amount of any required installment of corporate estimated tax which is otherwise due in September 2003 shall not be due until October 1, 2003.

Amend the title so as to read: ‘A bill to provide for reconciliation pursuant to section 201 of the concurrent resolution on the budget for fiscal year 2004.’.

Union Calendar No. 49

108th CONGRESS

1st Session

H. R. 2

[Report No. 108-94]

A BILL

To amend the Internal Revenue Code of 1986 to provide additional tax incentives to encourage economic growth.


May 8, 2003

Reported with amendments, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed