text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Restoring Investor Confidence Act of 
  2002''.
  
  SEC. 2. 55-PERCENT CAPITAL GAINS DEDUCTION FOR TAXPAYERS OTHER THAN 
                CORPORATIONS.
  
      (a) In General.--Section 1202 of the Internal Revenue Code of 1986 
  is amended to read as follows:
  
  ``SEC. 1202. CAPITAL GAINS DEDUCTION.
  
      ``(a) General Rule.--If for any taxable year a taxpayer other than 
  a corporation has a net capital gain, 55 percent of such gain shall be 
  a deduction from gross income.
      ``(b) Estates and Trusts.--In the case of an estate or trust, the 
  deduction shall be computed by excluding the portion (if any) of the 
  gains for the taxable year from sales or exchanges of capital assets 
  which, under sections 652 and 662 (relating to inclusions of amounts in 
  gross income of beneficiaries of trusts), is includible by the income 
  beneficiaries as gain derived from the sale or exchange of capital 
  assets.
      ``(c) Coordination With Treatment of Capital Gain Under Limitation 
  on Investment Interest.--For purposes of this section, the net capital 
  gain for any taxable year shall be reduced (but not below zero) by the 
  amount which the taxpayer takes into account as investment income under 
  section 163(d)(4)(B)(iii).
      ``(d) Transitional Rule.--
              ``(1) In general.--In the case of a taxable year which 
          includes January 1 of the year following the date of enactment 
          of this section--
                      ``(A) the amount taken into account as the net 
                  capital gain under subsection (a) shall not exceed the 
                  net capital gain determined by only taking into account 
                  gains and losses properly taken into account for the 
                  portion of the taxable year on or after such January 1, 
                  and
                      ``(B) the amount of the net capital gain taken into 
                  account in applying section 1(h) for such year shall be 
                  reduced by the amount taken into account under 
                  subparagraph (A) for such year.
              ``(2) Special rules for pass-thru entities.--
                      ``(A) In general.--In applying paragraph (1) with 
                  respect to any pass-thru entity, the determination of 
                  when gains and losses are properly taken into account 
                  shall be made at the entity level.
                      ``(B) Pass-thru entity defined.--For purposes of 
                  subparagraph (A), the term `pass-thru entity' means--
                              ``(i) a regulated investment company,
                              ``(ii) a real estate investment trust,
                              ``(iii) an S corporation,
                              ``(iv) a partnership,
                              ``(v) an estate or trust, and
                              ``(vi) a common trust fund.''.
      (b) Deduction Allowable in Computing Adjusted Gross Income.--
  Section 62(a) of such Code (defining adjusted gross income) is amended 
  by inserting after paragraph (17) the following new paragraph:
              ``(18) Long-term capital gains.--The deduction allowed by 
          section 1202.''.
      (c) Conforming Amendments.--
              (1) Section 1 of such Code is amended by striking 
          subsection (h).
              (2) Section 170(e)(1) of such Code is amended by striking 
          ``the amount of gain'' in the material following subparagraph 
          (B)(ii) and inserting ``45 percent (50 percent in the case of a 
          corporation) of the amount of gain''.
              (3) Section 172(d)(2)(B) of such Code is amended to read as 
          follows:
                      ``(B) the deduction under section 1202 shall not be 
                  allowed.''.
              (4) The last sentence of section 453A(c)(3) of such Code is 
          amended by striking all that follows ``long-term capital 
          gain,'' and inserting ``the maximum rate on net capital gain 
          under section 1201 or the deduction under section 1202 
          (whichever is appropriate) shall be taken into account.''.
              (5) Section 642(c)(4) of such Code is amended to read as 
          follows:
              ``(4) Adjustments.--To the extent that the amount otherwise 
          allowable as a deduction under this subsection consists of gain 
          from the sale or exchange of capital assets held for more than 
          1 year, proper adjustment shall be made for any deduction 
          allowable to the estate or trust under section 1202 (relating 
          to capital gains deduction). In the case of a trust, the 
          deduction allowed by this subsection shall be subject to 
          section 681 (relating to unrelated business income).''.
              (6) The last sentence of section 643(a)(3) of such Code is 
          amended to read as follows: ``The deduction under section 1202 
          (relating to capital gains deduction) shall not be taken into 
          account.''.
              (7) Section 643(a)(6)(C) of such Code is amended by 
          inserting ``(i)'' before ``there shall'' and by inserting 
          before the period ``, and (ii) the deduction under section 1202 
          (relating to capital gains deduction) shall not be taken into 
          account''.
              (8)(A) Section 904(b)(2) of such Code is amended by 
          striking subparagraph (A), by redesignating subparagraph (B) as 
          subparagraph (A), and by inserting after subparagraph (A) (as 
          so redesignated) the following:
                      ``(B) Other taxpayers.--In the case of a taxpayer 
                  other than a corporation, taxable income from sources 
                  outside the United States shall include gain from the 
                  sale or exchange of capital assets only to the extent 
                  of foreign source capital gain net income.''.
              (B) Section 904(b)(2)(A) of such Code, as so redesignated, 
          is amended--
                      (i) by striking all that precedes clause (i) and 
                  inserting the following:
                      ``(A) Corporations.--In the case of a corporation--
                  '', and
                      (ii) in clause (i), by striking ``in lieu of 
                  applying subparagraph (A),''.
              (C) Section 904(b)(3) of such Code is amended by striking 
          subparagraphs (D) and (E) and inserting the following:
                      ``(D) Rate differential portion.--The rate 
                  differential portion of foreign source net capital 
                  gain, net capital gain, or the excess of net capital 
                  gain from sources within the United States over net 
                  capital gain, as the case may be, is the same 
                  proportion of such amount as the excess of the highest 
                  rate of tax specified in section 11(b) over the 
                  alternative rate of tax under section 1201(a) bears to 
                  the highest rate of tax specified in section 11(b).''.
              (D) Section 593(b)(2)(D)(v) of such Code is amended--
                      (i) by striking ``if there is a capital gain rate 
                  differential (as defined in section 904(b)(3)(D)) for 
                  the taxable year,'', and
                      (ii) by striking ``section 904(b)(3)(E)'' and 
                  inserting ``section 904(b)(3)(D)''.
              (9) Section 1044(d) of such Code is amended by striking the 
          last sentence.
              (10)(A) Section 1211(b)(2) of such Code is amended to read 
          as follows:
              ``(2) the sum of--
                      ``(A) the excess of the net short-term capital loss 
                  over the net long-term capital gain, and
                      ``(B) one-half of the excess of the net long-term 
                  capital loss over the net short-term capital gain.''.
              (B) So much of section 1212(b)(2) of such Code as precedes 
          subparagraph (B) thereof is amended to read as follows:
              ``(2) Special rules.--
                      ``(A) Adjustments.--
                              ``(i) For purposes of determining the 
                          excess referred to in paragraph (1)(A), there 
                          shall be treated as short-term capital gain in 
                          the taxable year an amount equal to the lesser 
                          of--
                                      ``(I) the amount allowed for the 
                                  taxable year under paragraph (1) or (2) 
                                  of section 1211(b), or
                                      ``(II) the adjusted taxable income 
                                  for such taxable year.
                              ``(ii) For purposes of determining the 
                          excess referred to in paragraph (1)(B), there 
                          shall be treated as short-term capital gain in 
                          the taxable year an amount equal to the sum 
                          of--
                                      ``(I) the amount allowed for the 
                                  taxable year under paragraph (1) or (2) 
                                  of section 1211(b) or the adjusted 
                                  taxable income for such taxable year, 
                                  whichever is the least, plus
                                      ``(II) the excess of the amount 
                                  described in subclause (I) over the net 
                                  short-term capital loss (determined) 
                                  without regard to this subsection) for 
                                  such year.''.
              (C) Section 1212(b) of such Code is amended by adding at 
          the end of the following:
              ``(3) Transitional rule.--In the case of any amount which, 
          under this subsection and section 1211(b) (as in effect for 
          taxable year beginning before January 1, 2003), is treated as a 
          capital loss in the first taxable year beginning after December 
          31, 2002, paragraph (2) and section 1211(b) (as so in effect) 
          shall apply (and paragraph (2) and section 1211(b) as in effect 
          for taxable years beginning after December 31, 2002, shall not 
          apply) to the extent such amount exceeds the total of any 
          capital gain net income (determined without regard to this 
          subsection) for taxable years beginning after December 31, 
          2002.''.
              (11) Section 1402(i)(1) of such Code is amended by 
          inserting``, and the deduction provided by section 1202 shall 
          not apply'' before the period at the end thereof.
              (12) Section 1445(e) of such Code is amended--
                      (A) in paragraph (1), by striking ``35 percent (or, 
                  to the extent provided in regulations, 20 percent)'' 
                  and inserting ``17.5 percent (or, to the extent 
                  provided in regulation, 15.6 percent)'', and
                      (B) in paragraph (2), by striking ``35 percent'' 
                  and inserting ``17.5 percent''.
              (13)(A) The second sentence of section 7518(g)(6)(A) of 
          such Code is amended--
                      (i) by striking ``during a taxable year to which 
                  section 1(h) or 1201(a) applies'', and
                      (ii) by striking ``20 percent (34 percent'' and 
                  inserting ``10 percent (15.3 percent''.
              (B) The second sentence of section 607(h)(6)(A) of the 
          Merchant Marine Act, 1936 is amended--
                      (i) by striking ``during a taxable year to which 
                  section 1(h) or 1201(a) of such Code applies'', and
                      (ii) by striking ``20 percent (34 percent'' and 
                  inserting ``10 percent (15.3 percent''.
              (14) The item relating to section 1202 in the table of 
          sections for part I of subchapter P of chapter 1 of such Code 
          is amended to read as follows:
  
                                ``Sec. 1202. Capital gains deduction.''.
      (d) Effective Dates.--
              (1) In general.--Except as otherwise provided in this 
          subsection, the amendments, made by this section apply to 
          taxable years ending after December 31 of the year which 
          includes the date of enactment of this Act.
              (2) Repeal of section 1(h).--The amendment made by 
          subsection (c)(1) applies to taxable years beginning on or 
          after January 1 of the year following the date of enactment of 
          this Act.
              (3) Contributions.--The amendment made by subsection (c)(2) 
          applies to contributions on or after January 1 of the year 
          following the date of enactment of this Act.
              (4) Use of long-term losses.--The amendments made by 
          subsection (c)(10) apply to taxable years beginning on or after 
          January 1 of the second year following the date of enactment of 
          this Act.
              (5) Withholding.--The amendments made by subsection (c)(12) 
          apply only to amounts paid on or after January 1 of the year 
          following the date of enactment of this Act.
  
  SEC. 3. 55-PERCENT 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. 55-PERCENT EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
  
      ``(a) Exclusion From Gross Income.--Gross income does not include 
  55 percent of the amounts received during the taxable year by an 
  individual as dividends from domestic corporations.
      ``(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 partial 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 partial 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. 55-percent exclusion of 
                                          dividends received by 
                                          individuals.''
      (c) Effective Date.--The amendments made by this section shall 
  apply to taxable years ending after December 31 of the year which 
  includes the date of enactment of this Act.
target: Restoring Investor Confidence Act of 2002 - Amends the Internal Revenue Code to revise rules concerning capital gain for taxpayers other than corporations to establish a new general rule which provides that if for any taxable year a taxpayer other than a corporation has a capital gain, 55 percent of such gain shall be a deduction from gross income.Excludes from individual gross income 55 percent of dividends received from a domestic corporation.
feat_title: To amend the Internal Revenue Code of 1986 to simplify and reduce the capital gain rates for all taxpayers and to exclude from gross income 55 percent of the dividends received by individuals, and for other purposes.