Broad-Based Enhanced Savings Tax Act of 1985

Broad-Based Enhanced Savings Tax Act of 1985 - Title I: Reduction of Individual Income Tax Rates - Amends the Internal Revenue Code to reduce the number of tax brackets to four and to reduce the marginal tax rates in the four brackets. Provides for a three-year phase down of the marginal tax rates ending in 1990. Postpones until 1986 the indexing of the rate brackets, including the zero bracket amount.

Increases the earned income credit for certain individuals and couples with children in 1985 to 13 percent of the first $5,200 of earned income. Phases out the credit as the earned income of the taxpayer increases. Provides for an inflation adjustment to the earned income credit.

Increases the personal exemption deduction to $1,050 in 1985. Allows a cost-of-living adjustment to this amount. Repeals the alternative for lump-sum distributions.

Title II: Incentives for Investment and Savings - Subtitle A: Depreciation Reform - Permits the taxpayer to take a deduction with respect to expense-method property in the year it is placed in service equal to the basis of such property. Defines "expense-method property" as tangible property that is assigned to the three-year or five-year class for purposes of ACRS deductions and qualifies for the investment credit. Prohibits the expensing of several types of properties.

Provides that the deduction for expense-method property shall be phased in over a period of five years, with the complete allowance of the expense-method property deduction occurring in 1990. Provides that the amount not eligible for the expense-method property deduction shall be eligible for the investment tax credit and the depreciation deduction.

Provides that expense method property shall not be eligible for the investment tax credit.

Reduces the recovery period for 18-year real property placed in service after 1989 to 15 years.

Subtitle B: Savings Incentives - Allows an individual to establish a super savings account to which tax deductible contributions may be made. Limits the maximum amount of deductions to such an account in 1985 to $7,500. Increases this limit each year to a maximum of $10,000 for 1990 and beyond (joint returns would begin at $15,000 in 1985 and gradually increase to $20,000 in 1990).

Requires that distributions from such an account be included in the adjusted gross income of the individual for the year in which the distribution is made. Provides that amounts in such an account pledged as security for a loan shall be treated as having been distributed to the individual.

Provides that a super savings account is exempt from taxation.

Prohibits deductions for contributions that are directly attributable to indebtedness which is incurred or continued by the individual making the contribution.

Allows an individual to make contributions of stocks, bonds, or other readily tradeable securities to such an account during 1985. Requires contributions and distributions to be made in cash, except for contributions made in 1985.

Requires the trustee of a super savings account to file reports regarding such account as may be required by the Secretary of the Treasury.

Imposes a penalty tax for excess contributions and certain prohibited transactions.

Directs the Secretary of the Treasury to conduct a study and report to the Congress on whether the super savings account provisions should take into account any differences between common law and community property States.

Title III: Base Broadening - Subtitle A: Credits - Repeals the income tax credits for: (1) household and dependent care services; (2) the elderly and disabled; (3) residential energy expenditures; and (4) political contributions. Provides that the credits pertaining to clinical testing expenses, producing fuel from nonconventional sources, and increasing research activities and the general business credit shall be allowed only to C corporations.

Subtitle B: Exclusions - Repeals the various exclusions from income for individuals.

Provides that the exclusion of payments received to encourage production of strategic minerals and income from sources within possessions of the United States shall apply only to C corporations.

Includes in the gross income of an employee the cost of group-term life insurance purchased by the employer. Provides for the taxation of unemployment compensation received by the taxpayer during the year. Includes in income amounts received as a pension, an annuity, or a similar allowance for personal injury or sickness resulting from active duty in the armed forces or as a disability annuity from the Foreign Service.

Provides that the exclusion of employer contributions to accident and health plans shall apply only to contributions attributable to the providing of wages for periods during which the employee is absent from work on account of sickness or disability.

Limits the amount of scholarship and fellowship awards which may be excluded from gross income to the amount of tuition and related expenses.

Excludes from gross income of an individual income from sources within possessions of the United States.

Subtitle C: Deductions - Repeals: (1) the deductions for taxes, moving expenses, two-earner married couples, and adoption expenses; (2) the additional personal exemption deduction for taxpayers 65 or over; (3) the deductions allowed to individuals for nonbusiness interest other than housing interest; and (4) the deduction for casualty and theft losses for individuals. Increases the floor for the medical deduction from five to ten percent of adjusted gross income.

Subtitle D: Repeal of Special Capital Gains Treatment - Repeals the individual deductions for capital gains. Limits the amount of capital losses deductible by individuals without regard to the distinction between long term and short term capital losses.

Title IV: Effective Dates - Sets forth the effective dates for the provisions of this Act.