Tax Equity and Simplification Act of 1985

Summary

Tax Equity and Simplification Act of 1985 - Requires the Secretary of the Treasury to submit to specified congressional committees: (1) recommendations to make the provisions of this Act revenue neutral; and (2) an implementing bill. Title I: Individual Income Tax - Chapter 1: Reduction of Marginal Tax Rates - Amends the Internal Revenue Code to reduce the number of tax brackets to three for married individuals, unmarried individuals, and married individuals filing separate returns. Reduces the marginal tax rates by establishing rates of 15 percent, 25 percent, and 35 percent for these three tax brackets. Chapter 2: Fairness for Families - Increases the zero bracket amount for married individuals, unmarried individuals, and married individuals filing separate returns. Increases the personal exemption to $2,000. Provides a combined tax credit for the elderly, blind, and disabled in accordance with the Department of the Treasury report to the President, entitled "Tax Reform For Fairness, Simplicity, and Economic Growth." (Treasury Report). Repeals the additional personal exemptions for the elderly and the blind. Repeals the deduction for two-earner married couples. Provides for an inflation adjustment annually for the earned income credit. Provides for a deduction in lieu of the tax credit allowed under current law for child and dependent care expenses. Chapter 3: Fair and Neutral Taxation - Repeals the exclusion for: (1) employer-provided group term life insurance; (2) employer-provided death benefits; (3) employer-provided legal services; (4) employer-provided dependent care services; (5) employer-provided commuting services; (6) employer-provided educational assistance; (7) employer-provided cafeteria plans; (8) employee awards; (9) military allowances; and (10) parsonage allowances. Repeals provisions relating to the special treatment of incentive stock options. Repeals the tax-exemption for voluntary employee benefit associations, supplemental unemployment benefit trusts, and black lung benefit trusts. Limits the exclusion of scholarship and fellowships to those amounts used for tuition and related expenses. Repeals the exclusion for prizes and awards. Limits the charitable deduction for appreciated property to the adjusted basis of such property adjusted for inflation. Revises the charitable contribution deduction percentage limitations in accordance with the Treasury Report. Repeals the charitable contribution deduction for nonitemizers. Prohibits the deduction for expenses which are of a type generally considered to constitute entertainment, amusement, or recreation. Limits the amount of deductions for business meals to a maximum per person per meal of $10 for breakfast, $15 for lunch, and $25 for dinner. Limits the deductibility of travel expenses in accordance with the provisions of the Treasury report. Provides that the taxable income of a child under 14 years of age shall be taxed at the marginal tax rates of the child's parents in accordance with the provisions of the Treasury Report. Revises the income taxation of trusts and estates in accordance with the proposals of the Treasury Report. Chapter 4: Simplification - Directs the Internal Revenue Service to study the implementation of a return-free income tax system. Repeals: (1) the alternative minimum tax; (2) the credit for contributions for candidates for public office; and (3) the deduction for adoption expenses. Provides that deductions for employee business expenses and miscellaneous itemized deductions shall be allowed only to the extent that they exceed one percent of adjusted gross income. Chapter 5: Other Miscellaneous Reforms - Increases: (1) the overall dollar limitation on the deduction for indirect moving expenses from $3,000 to $10,000; and (2) the deduction for temporary living expenses and round trip travel expenses connected with moving from $1,000 to $3,000. Limits the moving expense deductions for moves to a foreign country to: (1) $10,000 (increased fom $6,000) for indirect moving expenses; and (2) $6,000 (increased from $4,500) for temporary living expenses and round trip travel expenses. Provides for an annual inflation adjustment for the dollar limitations. Provides that individuals who were full-time students during the base period years shall be ineligible for income averaging pursuant to the Treasury proposal. Title II: Business and Capital Income Taxes - Chapter 1: Corporate Tax Rates - Reduces the corporate tax rates by providing for three tax brackets with the rates ranging from 15 percent in the lowest tax bracket to 33 percent in the highest bracket. Provides that a corporation with taxable income in excess of $100,000 for any taxable year must increase the amount of its tax liability by the lesser of: (1) 13 percent of the excess of the corporations taxable income over $100,000; or (2) $13,000. Repeals the corporate minimum tax. Chapter 2: Taxation of Business Organizations - Repeals the partial exclusion of dividends received by individuals. Taxes limited partnerships as corporations if at any time during the taxable year the partnership has more than 35 limited partners. Chapter 3: Capital Consumption Allowances - Establishes a Real Cost Recovery System pursuant to the Treasury Report proposals to take into account the effects of inflation and the real economic loss inherent in the use of assets over time. Repeals the investment tax credit. Chapter 4: Adjustments for Effect of Inflation - Eliminates the preferential tax rate for long-term capital gains and provides for inflation adjustments to be made to the adjusted basis of property in accordance with the Treasury Report. Permits taxpayers to index inventories using an inflation adjustment based on the Consumer Price Index. Provides for an inflation adjustment to interest by excluding a fractional amount of interest receipts from income and by denying a deduction for a corresponding fraction of interest payments in accordance with the Treasury Report. Chapter 5: Income Measurement - Revises the accounting rules for multiperiod production according to the Treasury Report. Provides that an amount borrowed which is secured by an installment obligation shall be treated as a payment on the installment obligation in accordance with the Treasury Report. Limits the use of the cash method of accounting to cases where: (1) a taxpayer's business has average annual gross receipts of $5,000,000 or less; and (2) where no other method of accounting has been regularly used to ascertain the income, profit, or loss of such taxpayer's business. Repeals the reserve method for bad debt deductions. Chapter 6: Taxation of Energy and Natural Resources - Repeals the tax credits relating to: (1) residential energy; (2) producing fuel from a nonconventional source; and (3) alcohol fuels. Repeals the refund of tax on fuels used in certain taxicabs. Repeals: (1) percentage depletion; (2) expensing of intangible drilling and development costs; (3) expensing of hard mineral exploration and development costs; (4) the deduction for qualified tertiary injectant expenses; (5) capital gains treatment for timber, coal, and iron ore royalty income; (6) special rules for mining and solid waste reclamation and closing costs; and (7) the crude oil windfall profit tax. Chapter 7: Financial Institutions - Repeals the special rules for bad debt deduction. Prohibits any bank or other financial institution from deducting interest payments allocated to the purchasing or carrying of tax-exempt obligations pursuant to the Treasury Report. Repeals the tax-exempt status of credit unions. Repeals the special reorganization rules for financially troubled thrift institutions. Provides for the taxation of the annual increase in the cash surrender value of insurance policies pursuant to the proposals of the Treasury Report. Treats policyholder loans and partial withdrawals under life insurance policies as distributions of income to the policy holder pursuant to the proposals of the Treasury Report. Provides that investment income credited to deferred annuity contracts will be subject to tax according to the Treasury Report. Modifies the life insurance company reserve deduction. Repeals the special life insurance company deductions. Limits the property and casualty insurance company reserve deductions in accordance with Treasury Report proposals. Repeals the deduction for contributions to a protection against loss account. Repeals the special tax-exemptions, tax rate reductions, and deductions of small mutual property and casualty insurance companies. Reduces the deduction for policyholder dividends allowed to mutual property and casualty insurance companies. Repeals the tax-exemptions for insurance businesses in accordance with the Treasury Report proposals. Chapter 8: State and Local Government Debt and Investments - Provides that interest on obligations issued by State or local governments shall be subject to tax if more than one percent of the proceeds are used directly or indirectly by any person other than a State or local government. Imposes limitations on arbitrage profits and advance refunding of tax-exempt bonds in accordance with the proposals of the Treasury Report. Repeals the general stock ownership corporation provisions. Chapter 9: Special Expensing and Amortization Rules - Repeals the amortization rules for: (1) trademark and trade name expenditures; (2) certified pollution control facilities; (3) rehabilitation of low income housing; (4) the cost of qualfied railroad grading and tunnel bores; (5) expenses for soil and water conservation, fertilizer and soil conditioning, and land clearing; and (6) reforestation expenditures. Chapter 10: Other Specific Subsidies - Repeals: (1) the tax credit for qualified rehabilitation expenditures; (2) special rules for book, magazine, and discount coupon income; (3) the Merchant Marine Capital Construction Fund exclusions; and (4) the possessions tax credit. Chapter 11: Other Curtailments of Tax Shelters - Limits the deduction for interest in accordance with the provisions of the Treasury Report. Extends the at-risk rules to apply to all activities, including real estate and equipment leasing. Chapter 12: Retirement Savings - Increases the dollar limit on deductions to individual retirement accounts from $2,000 to $2,500. Increases the amount of the deduction for an individual retirement account and a spousal individual retirement account from $2,250 to $2,750. Provides that all tax qualified retirement plans shall be subject to uniform minimum distribution rules in accordance with the proposals of the Treasury Report. Revises the rules relating to the deduction of contributions to qualified retirement plans in accordance with the Treasury Report proposals. Modifies the annual limits on qualified retirement plan contributions and benefits according to the Treasury Report proposals. Imposes a ten percent tax on qualified retirement plan assets reverting to the employer upon the termination of a qualified retirement plan. Repeals provisions permitting cash or deferred arrangements. Provides that qualified pension plans shall be permitted to use benefits forfeited by a separated employee to increase the benefits that other employees would otherwise receive under the plan. Chapter 13: International Issues - Imposes a per-country limitation on the foreign tax credit in accordance with the Treasury Report proposals. Modifies the sourcing rules for income and deductions in accordance with the Treasury report proposals. Replaces the "second dividend tax" with an additional tax on the profits of the United States branches of foreign corporations. Requires that foreign exchange gains and losses be treated as interest in accordance with the Treasury Report proposals. Title III: Other Tax Issues - Chapter 1: Estate and Gift Tax - Modifies the estate and gift tax in accordance with the Treasury Report proposals. Revises in accordance with the Treasury Report proposals: (1) the property value determination rules; (2) the power of appointment rules; and (3) the generation-skipping transfer tax. Expands the tax credit for tax on prior transfers. Revises the rules for installment payment of estate tax in accordance with the Treasury Report proposals. Repeals the estate tax deduction for interest payments as an administration expense. Revises the rules relating to income in respect of a decedent in accordance with the Treasury Report proposals. Replaces the maximum State death tax credit with a flat maximum credit equal to five percent of the decedent's Federal taxable estate. Repeals the capital gain treatment for redemptions of stock to pay death taxes. Chapter 2: Simplification of Certain Penalties - Consolidates the penalties relating to failure to file information returns, failure to furnish information, failure to provide information on returns, and filing false returns into one provision with uniform penalties in accordance with the Treasury Report proposals. Title IV: Effective Date - Sets forth the effective date for the provisions of this act.

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• Introduced in House

  summary · EN · 7 February 1985

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