Provides criteria for calculating a shareholder credit for a dividend. Classifies any shareholder credit determined under this Act as a tax paid by the relevant corporation.
Includes a taxpayer's shareholder credits in gross income.
Permits a corporation to deduct 100 percent of the amount received as dividends from a domestic corporation (presently the Code allows a deduction of 70 percent or 100 percent, depending on the type of dividend). Increases, from 70 to 100 percent, the amount a corporation is allowed to deduct with respect to dividends on certain preferred stock.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 50 Introduced in House (IH)]
108th CONGRESS
1st Session
H. R. 50
To amend the Internal Revenue Code of 1986 to eliminate the double
taxation of dividends.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 7, 2003
Mr. Cox (for himself, Mrs. Biggert, Mr. Brown of South Carolina, Mr.
Cantor, Mrs. Jo Ann Davis of Virginia, Mr. DeMint, Mr. Duncan, Mr.
English, Mr. Flake, Mr. Gallegly, Mr. Herger, Mr. Hyde, Mr. Istook, Mr.
Kolbe, Mr. Latham, Mr. Nethercutt, Mr. Otter, Mr. Paul, Mr. Pence, Mr.
Petri, Mr. Platts, Mr. Sessions, Mr. Shadegg, Mr. Shuster, Mr. Smith of
Michigan, Mr. Souder, Mr. Sweeney, Mr. Tiahrt, Mr. Weldon of Florida,
and Mr. Wilson of South Carolina) introduced the following bill; which
was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to eliminate the double
taxation of dividends.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investor Protection, Market
Stabilization, and Tax Fairness Restoration Act of 2003''.
SEC. 2. FINDINGS.
Congress finds that:
(1) Corporate earnings paid out as dividends are taxed once
at the full corporate rate, and again at the full individual
rate, leading to an effective rate that can be in excess of
60%.
(2) This confiscatory taxation of dividends has contributed
to a steady diminution of dividend payout ratios and the
virtual elimination of dividends as the primary method of
rewarding equity investors for risk.
(3) When taxation makes dividend distributions
uneconomical, investors are forced to look at sale or
collateralization of stock as essentially the only ways of
achieving an adequate rate of return on investment.
(4) As a result, even companies with healthy earnings are
unable to protect their investors from loss during a stock
market downturn.
SEC. 3. PURPOSE.
The purpose of this Act is to protect taxpaying investors in
America's equity markets, promote a greater correlation between
earnings and equity prices, and encourage economic growth by
eliminating the unfair double taxation of dividends.
SEC. 4. ELIMINATION OF DOUBLE TAX ON DIVIDENDS.
(a) Dividends Received by Individuals.--
(1) Credit for tax paid by distributing corporation.--Part
IV of subchapter A of chapter 1 of the Internal Revenue Code of
1986 is amended by adding at the end thereof the following new
subpart:
``Subpart H--Individual Shareholder Credit
``Sec. 54. Allowance of shareholder
credit.
``Sec. 54A. Determination of shareholder
credit.
``Sec. 54B. Inclusion of shareholder
credit.
``SEC. 54. ALLOWANCE OF SHAREHOLDER CREDIT.
``(a) General Rule.--In the case of a taxpayer other than a
corporation, there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to the shareholder
credits determined with respect to dividends from domestic corporations
received by the taxpayer during the taxable year.
``(b) Limitation.--The amount allowed as a credit under subsection
(a) for any taxable year shall not exceed the sum of--
``(1) the regular tax liability of the taxpayer for the
taxable year reduced by the sum of the credits allowable under
this part (other than subpart C), and
``(2) the minimum tax imposed by section 55.
``(c) Nonresident Aliens.--No credit shall be allowed under this
section to any nonresident alien with respect to any dividend unless
such dividend is taxable under section 871(b) (relating to income
effectively connected with United States business).
``SEC. 54A. DETERMINATION OF SHAREHOLDER CREDIT.
``(a) General Rule.--For purposes of this subpart, the shareholder
credit with respect to any dividend paid by a domestic corporation is
an amount which bears the same ratio to such corporation's post-2002
Federal income taxes as--
``(1) the amount of such dividend (determined without
regard to section 54B), bears to
``(2) such corporation's post-2002 undistributed earnings.
``(b) Post-2002 Federal Income Taxes.--For purposes of this
section--
``(1) In general.--The term `post-2002 Federal income
taxes' means the sum of--
``(A) the Federal income taxes with respect to the
taxable year of the distributing corporation in which
the dividend is distributed, plus
``(B) the Federal income taxes with respect to
prior taxable years of such corporation beginning after
December 31, 2002, reduced by the amount of shareholder
credits determined with respect to distributions by
such corporation in such prior taxable years.
``(2) Federal income taxes.--The term `Federal income
taxes' means any tax paid by the corporation under this
chapter. Any shareholder credit determined under this section
with respect to a dividend received by the corporation during
any taxable year shall be treated as a tax paid by the
corporation under this chapter for such taxable year.
``(c) Post-2002 Undistributed Earnings.--For purposes of this
section, the term `post-2002 undistributed earnings' means the earnings
and profits of the distributing corporation accumulated in taxable
years beginning after December 31, 2002, determined--
``(1) as of the close of the taxable year in which the
dividend is distributed, and
``(2) without diminution by reason of dividends distributed
during such taxable year.
``SEC. 54B. INCLUSION OF SHAREHOLDER CREDIT.
``In the case of a taxpayer other than a corporation, gross income
shall include the amount of the shareholder credits determined under
section 54A with respect to dividends received by such shareholder.''
(2) Clerical amendment.--The table of subparts for part IV
of subchapter A of chapter 1 of such Code is amended by adding
at the end thereof the following new item:
``Subpart H. Individual shareholder
credit.''
(3) Effective date.--The amendments made by this subsection
shall apply to dividends paid out of earnings and profits for
taxable years beginning after December 31, 2002.
(b) Dividends Received by Corporations.--
(1) In general.--Subsection (a) of section 243 of such Code
(relating to dividends received by corporations) is amended to
read as follows:
``(a) General Rule.--In the case of a corporation, there shall be
allowed as a deduction an amount equal to 100 percent of the amount
received as dividends from a domestic corporation which is subject to
taxation under this chapter.''
(2) Dividends on certain preferred stock.--Section 244 of
such Code (relating to dividends received on certain preferred
stock) is amended--
(A) by striking ``70 percent'' in subsection (a)(3)
and inserting ``100 percent'',
(B) by striking ``(a) In General.--'', and
(C) by striking subsection (b).
(3) Technical, conforming and clerical amendments.--
(A) Section 243 of such Code (relating to dividends
received by corporations) is amended by striking
subsections (b) and (c) and by redesignating
subsections (d) and (e) as subsections (b) and (c),
respectively.
(B) Subsection (b) of section 246 of such Code
(relating to rules applying to deductions for dividends
received) is amended--
(i) in paragraph (1) by striking
``243(a)(1), 244(a)'' each time it appears and
inserting ``243, 244'' and by striking ``the
percentage determined under paragraph (3) of'',
and
(ii) by striking paragraph (3).
(C)(i) Subparagraph (A) of section 805(a)(4) of
such Code (relating to dividends received by life
insurance companies) is amended by striking all that
follows ``subparagraph (B))'' and inserting a period.
(ii) Subparagraph (B) of section 805(a)(4) of such
Code is amended--
(I) by striking ``243(a)(1), 244(a)'' each
place it appears and inserting ``243, 244'',
(II) by striking ``the percentage
determined under section 246(b)(3) of'', and
(III) by striking ``(and such limitation
shall be applied as provided in section
246(b)(3))''.
(iii) Paragraph (4) of section 805(a) of such Code
is amended by striking subparagraphs (C), (D), (E), and
(F) and inserting the following:
``(C) Distributions out of tax-exempt interest.--No
deduction shall be allowed by reason of this paragraph
with respect to any dividend to the extent the dividend
is a distribution out of tax-exempt interest.''
(D) Subparagraph (C) of section 861(a)(2) of such
Code (relating to income from sources within the United
States) is amended by striking ``243(e)'' and inserting
``243(c)''.
(E) Subparagraph (B) of section 1504(c)(2) of such
Code (relating to definition of includible insurance
companies) is amended by striking clause (i) and by
redesignating clauses (ii) and (iii) as clauses (i) and
(ii), respectively.
(4) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after the date of the
enactment of this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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