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        104th Congress, 1st Session - - - - - - - - - - - - - House 
Document 104-34



                         PROPOSED LEGISLATION:
 
         ``MIDDLE-CLASS BILL OF RIGHTS TAX RELIEF ACT OF 1995''

                               __________

                                MESSAGE

                                  FROM

                   THE PRESIDENT OF THE UNITED STATES

                              TRANSMITTING

A DRAFT OF PROPOSED LEGISLATION ENTITLED, ``MIDDLE-CLASS BILL OF RIGHTS 
                        TAX RELIEF ACT OF 1995''


<GRAPHIC NOT AVAILABLE IN TIFF FORMAT>

  February 13, 1995.--Message and accompanying papers referred to the 
         Committee on Ways and Means and ordered to be printed.
To the Congress of the United States:
    I am pleased to transmit today for your immediate 
consideration and enactment the ``Middle-Class Bill of Rights 
Tax Relief Act of 1995.'' I am also sending you an explanation 
of the revenue proposals of this legislation.
    This bill is the next step in my Administration's 
continuing effort to raise living standards for working 
families and help restore the American Dream for all our 
people.
    For 2 years, we have worked hard to strengthen our economy. 
We worked with the last Congress to enact legislation that will 
reduce the annual deficits of the 1994-98 by more than $600 
billion; we created nearly 6 million new jobs; we cut taxes for 
15 million low-income families and gave tax relief to small 
businesses; we opened export markets through global and 
regional trade agreements; we invested in human and physical 
capital to increase productivity; and we reduced the Federal 
Government by more than 100,000 positions.
    With that strong foundation in place, I am now proposing a 
Middle Class Bill of Rights. Despite our progress, too many 
Americans are still working harder for less. The Middle Class 
Bill of Rights will enable working Americans to raise their 
families and get the education and training they need to meet 
the demands of a new global economy. It will let middle-income 
families share in our economic prosperity today and help them 
build our economic prosperity tomorrow.
    The ``Middle-Class Bill of Right Tax Relief Act of 1995'' 
includes three of the four elements of my Middle Class Bill of 
Rights. First, it offers middle-income families a $500 tax 
credit for each child under 13. Second, it includes a tax 
deduction of up to $10,000 a year to help middle-income 
Americans pay for postsecondary education expenses and training 
expense. Third, it lets more middle-income Americans make tax-
deductible contributions to Individual Retirement Accounts and 
withdraw from the, penalty-free, for the costs of education and 
training, health care, first-time home-buying, long periods of 
unemployment, or the care of an ill parent.
    The fourth element of my Middle Class Bill of Rights--not 
included in this legislation--is the GI Bill for America's 
Workers, which consolidates 70 Federal training programs and 
creates a more effective system for learning new skills and 
finding better jobs for adults and youth. Legislation for this 
proposal is being developed in cooperation with the Congress.
    If enacted, the Middle Class Bill of Rights will help keep 
the American Dream alive for everyone willing to take 
responsibility for themselves, their families, and their 
futures. And it will not burden our children with more debt. In 
my fiscal 1996 budget, we have found enough savings not only to 
pay for this tax bill, but also to provide another $81 billion 
in deficit reduction between 1996 and 2000.
    This legislation will restore fairness to our tax system, 
let middle-income families share in our economic prosperity, 
encourage Americans to prepare for the future, and help ensure 
that the United States moves into the 21st Century still the 
strongest Nation in the world. I urge the Congress to take 
prompt and favorable action on this legislation.
                                                William J. Clinton.
    The White House, February 13, 1995.
A BILL To amend the Internal Revenue Code of 1986 to provide tax relief 
                          for the middle class

    Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Middle-
Class Bill of Rights Tax Relief Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code.

                    TITLE I--MIDDLE CLASS TAX RELIEF

Sec. 101. Credit for families with young children.
Sec. 102. Deduction for higher education expenses.

      TITLE II--PROVISIONS RELATING TO INDIVIDUAL RETIREMENT PLANS

                Subtitle A--Retirement Savings Incentives

                          PART I--IRA DEDUCTION

Sec. 201. Increase in income limitations.
Sec. 202. Inflation adjustment for deductible amount and income 
          limitations.
Sec. 203. Coordination of IRA deduction limit with elective deferral 
          limit.

                  PART II--NONDEDUCTIBLE TAX-FREE IRA'S

Sec. 211. Establishment of nondeductible tax-free individual retirement 
          accounts.

                 Subtitle B--Penalty-Free Distributions

Sec. 221. Distributions from certain plans may be used without penalty 
          to purchase first homes, to pay higher education or 
          financially devastating medical expenses, or by the 
          unemployed.
Sec. 222. Contributions must be held at least 5 years in certain cases.
                    TITLE I--MIDDLE CLASS TAX RELIEF

SEC. 101. CREDIT FOR FAMILIES WITH YOUNG CHILDREN.

    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits) is 
amended by inserting after section 22 the following new 
section:

``SEC. 23. FAMILIES WITH YOUNG CHILDREN.

    ``(a) Allowance of credit.--
          ``(1) In General.--In the case of an individual, 
        there shall be allowed as a credit against the tax 
        imposed by this chapter for the taxable year an amount 
        equal to $300 multiplied by the number of eligible 
        children of the taxpayer for the taxable year.
          ``(2) Increase in credit.--In the case of taxable 
        years beginning after December 31, 1998, paragraph (1) 
        shall be applied by substituting `$500' for `$300'.
    ``(b) Limitations.--
          ``(1) Phase-out of credit.--
                  ``(A) In general.--The amount of the credit 
                allowed under subsection (a) shall be reduced 
                (but not below zero) by the amount determined 
                under subparagraph (B).
                  ``(B) Amount of reduction.--The amount 
                determined under this subparagraph equals the 
                amount which bears the same ratio to the credit 
                (determined without regard to this subsection) 
                as--
                          ``(i) the excess of--
                                  ``(I) the taxpayer's adjusted 
                                gross income for such taxable 
                                year, over
                                  ``(II) $60,000, bears to
                          ``(ii) $15,000.
                Any amount determined under this subparagraph 
                which is not a multiple of $10 shall be rounded 
                to the next lowest $10.
                  ``(C) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income of any 
                taxpayer shall be increased by any amount 
                excluded from gross income under section 911, 
                931, or 933.
          ``(2) Limitation based on amount of tax.--The credit 
        allowed by subsection (a) for the taxable year (after 
        the application of paragraph (1)) shall not exceed the 
        excess (if any) of--
                  ``(A) the taxpayer's regular tax liability 
                for the taxable year reduced by the credits 
                allowable against such tax under this subpart 
                (other than this section) determined without 
                regard to section 26, over
                  ``(B) the sum of--
                          ``(i) the taxpayer's tentative 
                        minimum tax for such taxable year, plus
                          ``(ii) the credit allowed for the 
                        taxable year under section 32.
    ``(c) Eligible Child.--For purposes of this section, the 
term `eligible child' means any child (as defined in section 
151(c)(3)) of the taxpayer--
          ``(1) who has not attained age 13 as of the close of 
        the calendar year in which the taxable year of the 
        taxpayer begins,
          ``(2) who is a dependent of the taxpayer with respect 
        to whom the taxpayer is allowed a deduction under 
        section 151 for such taxable year, and
          ``(3) whose TIN is included on the taxpayer's return 
        for such taxable year.
    ``(d) Inflation Adjustments.--In the case of a taxable year 
beginning in a calendar year after 1999--
          ``(1) In general.--The $500 and $60,000 amounts 
        contained in subsections (a)(2) and (b)(2) shall each 
        be increased by an amount equal to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined by substituting `calendar year 1998' 
                for `calendar year 1992' in subparagraph (B) 
                thereof.
          ``(2) Increase in phaseout range.--If the amount 
        applicable under subsection (a) for any taxable year 
        exceeds $500, subsection (b)(2)(B) shall be applied by 
        substituting an amount equal to 30 times such 
        applicable amount for `$15,000'.
          ``(3) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $100, such amount 
        shall be rounded to the next lowest multiple of $100.
    ``(e) Special Rules.--
          ``(1) Amount of credit may be determined under 
        tables.--The amount of the credit allowed by this 
        section may be determined under tables prescribed by 
        the Secretary.
          ``(2) Certain other rules apply.--Rules similar to 
        the rules of subsections (c)(1) (E) and (F), (d), and 
        (e) of section 32 shall apply for purposes of this 
        section.''
    (b) Clerical Amendment.--The table of sections for subpart 
A of part IV of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 22 the following 
new item:

    ``Sec. 23. Families with young children.''

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.
SEC. 102. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 
1 (relating to additional itemized deductions for individuals) 
is amended by redesignating section 220 as section 221 and by 
inserting after section 219 the following new section:

``SEC. 220. HIGHER EDUCATION TUITION AND FEES.

    ``(a) Allowance of Deduction.--In the case of an 
individual, there shall be allowed as a deduction the amount of 
qualified higher education expenses paid by the taxpayer during 
the taxable year.
    ``(b) Limitations.--
          ``(1) Dollar limitation.--
                  ``(A) In general.--The amount allowed as a 
                deduction under subparagraph (a) for any 
                taxable year shall not exceed $10,000.
                  ``(B)  Phase-in.--In the case of taxable 
                years beginning in 1996, 1997, or 1998, 
                `$5,000' shall be substituted for `$10,000' in 
                subparagraph (A).
          ``(2) Limitation based on modified adjusted gross 
        income.--
                  ``(A) In general.--The amount which would 
                (but for this paragraph) be taken into account 
                under paragraph (1) shall be reduced (but not 
                below zero) by the amount determined under 
                subparagraph (B).
                  ``(B) Amount of reduction.--The amount 
                determined under this subparagraph equals the 
                amount which bears the same ratio to the amount 
                which would be so taken into account as--
                          ``(i) the excess of--
                                  ``(I) the taxpayer's modified 
                                adjusted gross income for such 
                                taxable year, over
                                  ``(II) $70,000 ($100,000 in 
                                the case of a joint return), 
                                bears to
                          ``(ii) $20,000.
                  ``(C) Modified adjusted gross income.--The 
                term `modified adjusted gross income' means the 
                adjusted gross income of the taxpayer for the 
                taxable year determined--
                          ``(i) without regard to this section 
                        and sections 911, 931, and 933, and
                          ``(ii) after the application of 
                        sections 86, 135, 219 and 469.
                For purposes of sections 86, 135, 219, and 469, 

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