I
111th CONGRESS
1st Session
H. R. 470
IN THE HOUSE OF REPRESENTATIVES
January 13, 2009
Mr. Garrett of New Jersey (for himself, Mr. Price of Georgia, and Mr. Jordan of Ohio) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Appropriations, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide for permanent tax incentives for economic growth.
Short title
Short title
This Act may be cited
as the Economic Recovery and
Middle-Class Tax Relief Act of 2009
.
Table of contents
Sec. 1. Short title.
Title I—Incentives for economic growth
Subtitle A—Income tax reductions
Sec. 101. 2003 tax reductions made permanent.
Sec. 102. 5 percent reduction in individual income tax rates.
Sec. 103. Repeal of alternative minimum tax on individuals.
Sec. 104. Reduction in corporate marginal income tax rates.
Subtitle B—Reduction of income taxes on capital assets
Sec. 111. Indexing of certain assets for purposes of determining gain or loss.
Sec. 112. Reduced capital gains rate for corporations.
Subtitle C—Other provisions related to businesses
Sec. 121. Repeal of certain limitations on the expensing of section 179 property.
Sec. 122. Research credit made permanent.
Sec. 123. 7-year carryback of net operating losses.
Subtitle D—Other provisions relating to individuals
Sec. 131. Child tax credit increased and made permanent.
Sec. 132. Distributions not required from individual retirement plans at age 70½.
Sec. 133. No IRA distribution during 2009 included in gross income.
Title II—Across-the-board rescissions in non-defense discretionary spending for fiscal year 2009
Sec. 201. Across-the-board rescissions in non-defense discretionary spending for fiscal year 2009.
Title III—Increased incentives for education
Sec. 301. Increased deduction for qualified higher education expenses.
Sec. 302. Increased deduction for interest on student loans.
Incentives for economic growth
Income tax reductions
2003 tax reductions made permanent
Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is hereby repealed.
5 percent reduction in individual income tax rates
In general
Section 1 of the Internal Revenue Code of 1986 (relating to tax imposed on individuals) is amended by adding at the end the following new subsection:
Rate reductions after 2007
In general
In the case of taxable years beginning in a calendar year after 2007, the reduced percentage specified in the following table shall be substituted for the otherwise applicable tax rate in the tables under subsections (a), (b), (c), (d), and (e).
| Otherwise applicable tax rate | Reduced percentage |
| 10 | 9.5 |
| 15 | 14.25 |
| 25 | 23.75 |
| 28 | 26.6 |
| 33 | 31.35 |
| 35 | 33.25 |
Adjustment of tables
The Secretary shall adjust the tables prescribed under subsection (f) to carry out this subsection.
.
Effective date
The amendment made by this subsection shall apply to taxable years beginning after December 31, 2007.
Repeal of EGTRRA sunset of rate reductions
Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to the amendments made by section 101 of such Act.
Repeal of alternative minimum tax on individuals
In general
Section 55(a) of the Internal Revenue Code of 1986 (relating to alternative minimum tax imposed) is amended by adding at the end the following new flush sentence:
For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2008, shall be zero.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2008.
Reduction in corporate marginal income tax rates
General rule
Paragraph (1) of section 11(b) of the Internal Revenue Code of 1986 is amended—
by inserting
and
at the end of subparagraph (A),
by striking
but does not exceed $75,000,
in subparagraph (B) and inserting a
period,
by striking subparagraphs (C) and (D), and
by striking the last 2 sentences.
Personal service corporations
Paragraph (2) of section 11(b) of such Code is
amended by striking 35 percent
and inserting 25
percent
.
Conforming amendments
Paragraphs (1) and
(2) of section 1445(e) of such Code are each amended by striking 35
percent
and inserting 25 percent
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008, except that the amendments made by subsection (c) shall take effect on the date of the enactment of this Act.
Reduction of income taxes on capital assets
Indexing of certain assets for purposes of determining gain or loss
In General
Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by redesignating section 1023 as section 1024 and by inserting after section 1022 the following new section:
Indexing of certain assets for purposes of determining gain or loss
General rule
Indexed basis substituted for adjusted basis
Solely for purposes of determining gain or loss on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 3 years, the indexed basis of the asset shall be substituted for its adjusted basis.
Exception for depreciation, etc
The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person.
Written documentation requirement
Paragraph (1) shall apply only with respect to indexed assets for which the taxpayer has written documentation of the original purchase price paid or incurred by the taxpayer to acquire such asset.
Indexed asset
In general
For purposes of this section, the term indexed asset means—
common stock in a C corporation (other than a foreign corporation), or
tangible property,
Stock in certain foreign corporations included
For purposes of this section—
In general
The term indexed asset includes common stock in a foreign corporation which is regularly traded on an established securities market.
Exception
Subparagraph (A) shall not apply to—
stock of a foreign investment company,
stock in a passive foreign investment company (as defined in section 1296),
stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and
stock in a foreign personal holding company.
Treatment of American depository receipts
An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation.
Indexed basis
For purposes of this section—
General rule
The indexed basis for any asset is—
the adjusted basis of the asset, increased by
the applicable inflation adjustment.
Applicable inflation adjustment
The applicable inflation adjustment for any asset is an amount equal to—
the adjusted basis of the asset, multiplied by
the percentage (if any) by which—
the gross domestic product deflator for the last calendar quarter ending before the asset is disposed of, exceeds
the gross domestic product deflator for the last calendar quarter ending before the asset was acquired by the taxpayer.
Gross domestic product deflator
The gross domestic product deflator for any calendar quarter is the implicit price deflator for the gross domestic product for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter).
Suspension of holding period where diminished risk of loss; treatment of short sales
In general
If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk.
Short sales
In general
In the case of a short sale of an indexed asset with a short sale period in excess of 3 years, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition.
Short sale period
For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale.
Treatment of regulated investment companies and real estate investment trusts
Adjustments at entity level
In general
Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity).
Exception for corporate shareholders
Under regulations—
in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation—
the determination of whether such distribution is a dividend shall be made without regard to this section, and
the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity’s net capital gain for the taxable year (determined without regard to this section) exceeds the entity’s net capital gain for such year determined with regard to this section, and
there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities.
Exception for qualification purposes
This section shall not apply for purposes of sections 851(b) and 856(c).
Exception for certain taxes imposed at entity level
Tax on failure to distribute entire gain
If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D).
Other taxes
This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b).
Adjustments to interests held in entity
Regulated investment companies
Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as—
the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to
the average of the fair market values of all assets held by such company at the close of each such month.
Real estate investment trusts
Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as—
the fair market value of the indexed assets held by such trust at the close of such quarter, bears to
the fair market value of all assets held by such trust at the close of such quarter.
Ratio of 80 percent or more
If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent.
Ratio of 20 percent or less
If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero.
Look-thru of partnerships
For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership.
Treatment of return of capital distributions
Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired.
Qualified investment entity
For purposes of this subsection, the term qualified investment entity means—
a regulated investment company (within the meaning of section 851), and
a real estate investment trust (within the meaning of section 856).
Other pass-thru entities
Partnerships
In general
In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners.
Special rule in the case of section 754 elections
In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect—
the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and
with respect to the transferee partner, the partnership’s holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment.
S corporations
In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375.
Common trust funds
In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants.
Indexing adjustment disregarded in determining loss on sale of interest in entity
Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest.
Dispositions between related persons
In general
This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis.
Related persons defined
For purposes of this section, the term related persons means—
persons bearing a relationship set forth in section 267(b), and
persons treated as single employer under subsection (b) or (c) of section 414.
Transfers To increase indexing adjustment
If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase.
Special rules
For purposes of this section—
Treatment of improvements, etc
If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation—
such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and
such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof during the taxable year with respect to such property or stock is $1,000 or more.
Assets which are not indexed assets throughout holding period
The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset.
Treatment of certain distributions
A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition.
Section cannot increase ordinary loss
To the extent that (but for this paragraph) this section would create or increase a net ordinary loss to which section 1231(a)(2) applies or an ordinary loss to which any other provision of this title applies, such provision shall not apply. The taxpayer shall be treated as having a long-term capital loss in an amount equal to the amount of the ordinary loss to which the preceding sentence applies.
Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer
If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
Termination
For purposes of this section, the term indexed asset shall not include any asset acquired after December 31, 2009.
.
Clerical amendment
The table of sections for part II of subchapter O of chapter 1 is amended by striking the item relating to section 1023 and by inserting after the item relating to section 1022 the following new items:
Sec. 1022. Indexing of certain assets for purposes of determining gain or loss.
Sec. 1023. Cross references.
.
Effective date
The amendments made by this section shall apply to sales and other dispositions of indexed assets after the date of the enactment of this Act, in taxable years ending after such date.
Reduced capital gains rate for corporations
In general
Section 1201 of the Internal Revenue Code of 1986 is
amended by striking 35 percent
both places it appears and
inserting 15 percent
.
Alternative minimum tax
Section 55(b) of such Code is amended by adding at the end the following new paragraph:
Maximum rate of tax on net capital gain of corporations
The amount determined under paragraph (1)(B)(i) shall not exceed the sum of—
the amount determined under such paragraph computed at the rates and in the same manner as if this paragraph had not been enacted on the taxable excess reduced by the net capital gain, plus
the amount determined under section 1201.
.
Technical amendments
Section 1445(e)(1)
of such Code, as amended by section 104, is amended by striking 25
percent (or, to the extent provided in regulations, 15 percent)
and
inserting 15 percent
.
Section 1445(e)(2)
of such Code, as so amended, is amended by striking 25 percent
and inserting 15 percent
.
Section
7518(g)(6)(A) of such Code is amended by striking (34 percent in the
case of a corporation)
.
Section
607(h)(6)(A) of the Merchant Marine Act, 1936 is amended by striking (34
percent in the case of a corporation)
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Withholding
The amendment made by subsection (c)(2) shall apply to amounts paid after the date of the enactment of this Act.
Other provisions related to businesses
Repeal of certain limitations on the expensing of section 179 property
In general
Section 179 of the Internal Revenue Code of 1986 is amended by striking subsection (b) and by redesignating subsections (c), (d), and (e) as subsections (b), (c), and (d), respectively.
Expensing of section 1250 property
Subparagraph (B) of section 179(c)(1) of
such Code, as redesignated by subsection (a), is amended by inserting or
section 1250 property (as defined in section 1250(c))
after
section 1245 property (as defined in section 1245(a)(3))
.
Conforming amendments
Subsection (c) of section 179 of such Code, as redesignated by subsection (a), is amended by striking paragraphs (6) and (8), and by redesignating paragraphs (7), (9), and (10) as paragraphs (6), (7), and (8), respectively.
Paragraph (6) of
section 179(c) of such Code, as redesignated by paragraph (1) and subsection
(a), is amended by striking paragraphs (2) and (6)
and inserting
paragraph (2)
.
Section 179 of such Code, as amended by subsection (a), is amended by striking subsection (d).
Sections
42(d)(2)(B)(i), 1397D(d)(1), 1400B(b)(4)(A)(i), and 1400F(b)(4)(A)(i) of such
Code are each amended by striking section 179(d)(2)
and
inserting section 179(c)(2)
.
Subclause (I) of section 42(d)(2)(D)(iii) of such Code is amended—
by striking
section 179(d)
and inserting section 179(c)
,
and
by striking
section 179(d)(7)
and inserting section
179(c)(6)
.
Subpart B of part III of subchapter U of chapter 1 of such Code is hereby repealed.
The table of subparts for such part III is amended by striking the item relating to subpart B.
Part III of subchapter X of chapter 1 of such Code is amended by striking section 1400J.
The table of sections for such part is amended by striking the item relating to section 1400J.
Paragraph (3) of section 1400E(b) of
such Code is amended by striking sections 1400F and 1400J
and
inserting section 1400F
.
Clause (iv) of
section 1400L(b)(2)(A) of such Code is amended by striking section
179(d)
and inserting section 179(c)
.
Section 1400L of such Code is amended by striking subsection (f).
Effective date
The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2008.
Research credit made permanent
In general
Section 41 of the Internal Revenue Code of 1986 (relating to credit for increasing research activities) is amended by striking subsection (h).
Conforming amendment
Paragraph (1) of section 45C(b) of such Code is amended by striking subparagraph (D).
Effective date
The amendments made by this section shall apply to amounts paid or incurred after December 31, 2009.
7-year carryback of net operating losses
In general
Clause (i) section
172(b)(1)(A) of the Internal Revenue Code of 1986 is amended by striking
2 taxable years
and inserting 7 taxable
years
.
Conforming amendments
Paragraph (1) of section 172(b) of such Code is amended by striking subparagraphs (F), (G), (H), (I), and (J).
Section 172 of such Code is amended by striking subsections (i), (j), and (k) and by redesignating subsection (l) as subsection (i).
Effective date
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, 2007.
Election
In the case of a net operating loss for a taxable year ending during 2008, any election made under section 172(b)(3) of the Internal Revenue Code of 1986 may (notwithstanding such section) be revoked before January 1, 2010.
Other provisions relating to individuals
Child tax credit increased and made permanent
Increased credit
Subsection (a) of
section 24 of the Internal Revenue Code of 1986 is amended by striking
$1,000
and inserting $5,000
.
Increased credit not refundable
Subparagraph (A) of section 24(d)(1) of such Code is amended to read as follows:
the credit which would be allowed under this section—
without regard to this subsection and the limitation under section 26(a)(2) or subsection (b)(3), as the case may be, and
if subsection (a)
were applied by substituting $1,000
for $5,000
,
or
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Distributions not required from individual retirement plans at age 70½
Paragraph (9) of section 401(a) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by adding at the end the following new subparagraph:
Exception for individual retirement plans
The requirements of this paragraph shall not apply to any individual retirement plan for any calendar year after 2009.
.
No IRA distribution during 2009 included in gross income
Subsection (d) of section 408 of the Internal Revenue Code of 1986 (relating to individual retirement accounts) is amended by adding at the end the following new paragraph:
Distributions during 2009
In general
Gross income of an individual for the taxable year does not include any distribution during 2009 from an individual retirement plan (other than a plan described in subsection (k) or (p)) to the extent such distribution is otherwise includible in gross income.
Application of section 72
Notwithstanding section 72, in determining the extent to which an amount is treated as otherwise includible in gross income for purposes of subparagraph (A), the aggregate amount distributed from an individual retirement plan shall be treated as includible in gross income to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts from all individual retirement plans were distributed. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
.
Across-the-board rescissions in non-defense discretionary spending for fiscal year 2009
Across-the-board rescissions in non-defense discretionary spending for fiscal year 2009
Across-the-board rescissions
There is hereby rescinded an amount equal to 1 percent of—
the budget authority provided (or obligation limitation imposed) for fiscal year 2009 for any non-defense discretionary account in any fiscal year 2009 appropriation Act;
the budget authority provided in any advance appropriation for fiscal year 2009 for any non-defense discretionary account in any prior fiscal year appropriation Act; and
the contract authority provided in fiscal year 2009 for any program that is subject to a limitation contained in any fiscal year 2009 appropriation Act for any non-defense discretionary account.
Non-defense discretionary account
For purposes of subsection (a), the term non-defense discretionary account means any discretionary account, other than—
any account included in a Department of Defense Appropriations Act;
any account included in a Military Quality of Life and Veterans Affairs Appropriations Act; or
any account for Department of Energy defense activities included in an Energy and Water Development Appropriations Act.
Proportionate application
Any rescission made by subsection (a) shall be applied proportionately—
to each discretionary account and each item of budget authority described in such subsection; and
within each such account and item, to each program, project, and activity (with programs, projects, and activities as delineated in the appropriation Act or accompanying reports for the relevant fiscal year covering such account or item, or for accounts and items not included in appropriation Acts, as delineated in the most recently submitted President's budget).
Subsequent appropriation laws
In the case of any fiscal year 2009 appropriation Act enacted after the enactment of this section, any rescission required by subsection (a) shall take effect immediately after the enactment of such Act.
OMB report
Within 30 days after the enactment of this section (or, if later, 30 days after the enactment of any fiscal year 2009 appropriation Act), the Director of the Office of Management and Budget shall submit to the Committees on Appropriations of the House of Representatives and the Senate a report specifying the account and amount of each rescission made pursuant to subsection (a).
Increased incentives for education
Increased deduction for qualified higher education expenses
In general
Paragraph (2) of section 222(b) of the Internal Revenue Code of 1986 (relating to dollar limitations on qualified tuition and related expenses) is amended to read as follows:
Dollar limitations
In general
In the case of any taxable year beginning after 2008, the applicable dollar amount shall be equal to—
in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $75,000 ($150,000 in the case of a joint return), $6,000,
in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $90,000 ($180,000 in the case of a joint return), $2,000, and
in the case of any other taxpayer, zero.
Adjusted gross income
For purposes of this paragraph, adjusted gross income shall be determined—
without regard to this section and sections 199, 911, 931, and 933, and
after application of sections 86, 135, 137, 219, 221, and 469.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2008.
Increased deduction for interest on student loans
Increased deduction
Paragraph (1) of section 223(b) of the Internal Revenue Code of 1986 (relating to interest on education loans) is amended to read as follows:
Maximum deduction
Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed $3,750.
.
Expanded income eligibility
Subclause (II) of section 223(b)(2)(B)(i) of such
Code is amended by striking $50,000 ($100,000
and inserting
$75,000 ($150,000
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.