Economic Recovery and Middle-Class Tax Relief Act of 2009

by United States Congress

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111TH CONGRESS 1ST SESSION

H. R. 470

To amend the Internal Revenue Code of 1986 to provide for permanent tax incentives for economic growth.

IN THE HOUSE OF REPRESENTATIVES

Mr. GARRETT of New Jersey introduced the following bill; which was referred to the Committee on ______________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide for permanent tax incentives for economic growth.

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

SECTION 1. SHORT TITLE.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Economic Recovery and Middle-Class Tax Relief Act of 2009’’.

(b) TABLE OF CONTENTS.—

Sec. 1. Short title.

TITLE I—INCENTIVES FOR ECONOMIC GROWTH

Subtitle A—Income Tax Reductions

Sec. 101. 2003 tax reductions made permanent.

Sec. 102. 5 percent reduction in individual income tax rates.

Sec. 103. Repeal of alternative minimum tax on individuals.

Sec. 104. Reduction in corporate marginal income tax rates.

Subtitle B—Reduction of Income Taxes on Capital Assets

Sec. 111. Indexing of certain assets for purposes of determining gain or loss.

Sec. 112. Reduced capital gains rate for corporations.

Subtitle C—Other Provisions Related to Businesses

Sec. 121. Repeal of certain limitations on the expensing of section 179 property.

Sec. 122. Research credit made permanent.

Sec. 123. 7-year carryback of net operating losses.

Subtitle D—Other Provisions Relating to Individuals

Sec. 131. Child tax credit increased and made permanent.

Sec. 132. Distributions not required from individual retirement plans at age 70 1⁄2.

Sec. 133. No IRA distribution during 2009 included in gross income.

TITLE II—ACROSS-THE-BOARD RESCISSIONS IN NON-DEFENSE DISCRETIONARY SPENDING FOR FISCAL YEAR 2009

Sec. 201. Across-the-board rescissions in non-defense discretionary spending for fiscal year 2009.

TITLE III—INCREASED INCENTIVES FOR EDUCATION

Sec. 301. Increased deduction for qualified higher education expenses.

Sec. 302. Increased deduction for interest on student loans.

TITLE I—INCENTIVES FOR ECONOMIC GROWTH

Subtitle A—Income Tax Reductions

SEC. 101. 2003 TAX REDUCTIONS MADE PERMANENT.

Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is hereby repealed.

SEC. 102. 5 PERCENT REDUCTION IN INDIVIDUAL INCOME TAX RATES.

(a) IN GENERAL.—Section 1 of the Internal Revenue Code of 1986 (relating to tax imposed on individuals) is amended by adding at the end the following new subsection:

‘‘(j) RATE REDUCTIONS AFTER 2007.—

‘‘(1) IN GENERAL.— In the case of taxable years beginning in a calendar year after 2007, the reduced percentage specified in the following table shall be substituted for the otherwise applicable tax rate in the tables under subsections (a), (b), (c), (d), and (e).

‘‘Otherwise applicable tax rate 10 ........................................................................... 15 ........................................................................... 25 ........................................................................... 28 ........................................................................... 33 ........................................................................... 35 ...........................................................................

Reduced percentage 9.5 14.25 23.75 26.6 31.35 33.25

‘‘(2) ADJUSTMENT OF TABLES.—The Secretary shall adjust the tables prescribed under subsection (f) to carry out this subsection.’’.

(b) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 2007.

(c) REPEAL OF EGTRRA SUNSET OF RATE REDUCTIONS.—Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to the amendments made by section 101 of such Act.

SEC. 103. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

(a) IN GENERAL.—Section 55(a) of the Internal Revenue Code of 1986 (relating to alternative minimum tax imposed) is amended by adding at the end the following new flush sentence:

‘‘For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2008, shall be zero.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2008.

SEC. 104. REDUCTION IN CORPORATE MARGINAL INCOME TAX RATES.

(a) GENERAL RULE.—Paragraph (1) of section 11(b) of the Internal Revenue Code of 1986 is amended—

(1) by inserting ‘‘and’’ at the end of subparagraph (A),

(2) by striking ‘‘but does not exceed $75,000,’’ in subparagraph (B) and inserting a period,

(3) by striking subparagraphs (C) and (D), and

(4) by striking the last 2 sentences.

(b) PERSONAL SERVICE CORPORATIONS.—Paragraph (2) of section 11(b) of such Code is amended by striking ‘‘35 percent’’ and inserting ‘‘25 percent’’.

(c) CONFORMING AMENDMENTS.—Paragraphs (1) and (2) of section 1445(e) of such Code are each amended by striking ‘‘35 percent’’ and inserting ‘‘25 percent’’.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008, except that the amendments made by subsection (c) shall take effect on the date of the enactment of this Act.

Subtitle B—Reduction of Income Taxes on Capital Assets

SEC. 111. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR LOSS.

(a) IN GENERAL.—Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by redesignating section 1023 as section 1024 and by inserting after section 1022 the following new section:

‘‘SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR LOSS.

‘‘(a) GENERAL RULE.—

‘‘(1) INDEXED BASIS SUBSTITUTED FOR ADJUSTED BASIS.—Solely for purposes of determining gain or loss on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 3 years, the in dexed basis of the asset shall be substituted for its adjusted basis.

‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.— The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person.

‘‘(3) WRITTEN DOCUMENTATION REQUIREMENT.—Paragraph (1) shall apply only with respect to indexed assets for which the taxpayer has written documentation of the original purchase price paid or incurred by the taxpayer to acquire such asset.

‘‘(b) INDEXED ASSET.—

‘‘(1) IN GENERAL.—For purposes of this section, the term ‘indexed asset’ means—

‘‘(A) common stock in a C corporation (other than a foreign corporation), or

‘‘(B) tangible property, which is a capital asset or property used in the trade or business (as defined in section 1231(b)).

‘‘(2) STOCK IN CERTAIN FOREIGN CORPORATIONS INCLUDED.—For purposes of this section—

‘‘(A) IN GENERAL.—The term ‘indexed asset’ includes common stock in a foreign corporation which is regularly traded on an established securities market.

‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply to—

‘‘(i) stock of a foreign investment company,

‘‘(ii) stock in a passive foreign investment company (as defined in section 1296),

‘‘(iii) stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and

‘‘(iv) stock in a foreign personal holding company.

‘‘(C) TREATMENT OF AMERICAN DEPOSITORY RECEIPTS.—An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation.

‘‘(c) INDEXED BASIS.—For purposes of this section—

‘‘(1) GENERAL RULE.—The indexed basis for any asset is—

‘‘(A) the adjusted basis of the asset, increased by

‘‘(B) the applicable inflation adjustment.

‘‘(2) APPLICABLE INFLATION ADJUSTMENT.— The applicable inflation adjustment for any asset is an amount equal to—

‘‘(A) the adjusted basis of the asset, multiplied by

‘‘(B) the percentage (if any) by which—

‘‘(i) the gross domestic product deflator for the last calendar quarter ending before the asset is disposed of, exceeds

‘‘(ii) the gross domestic product deflator for the last calendar quarter ending before the asset was acquired by the taxpayer.

The percentage under subparagraph (B) shall be rounded to the nearest 1⁄10 of 1 percentage point.

‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.— The gross domestic product deflator for any calendar quarter is the implicit price deflator for the gross domestic product for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter).

‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DIMINISHED RISK OF LOSS; TREATMENT OF SHORT SALES.—

‘‘(1) IN GENERAL.—If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk.

‘‘(2) SHORT SALES.—

‘‘(A) IN GENERAL.—In the case of a short sale of an indexed asset with a short sale period in excess of 3 years, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition.

‘‘(B) SHORT SALE PERIOD.—For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale.

‘‘(e) TREATMENT OF REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.—

‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.—

‘‘(A) IN GENERAL.—Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity).

‘‘(B) EXCEPTION FOR CORPORATE SHAREHOLDERS.—Under regulations—

‘‘(i) in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation—

‘‘(I) the determination of whether such distribution is a dividend shall be made without regard to this section, and

‘‘(II) the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity’s net capital gain for the taxable year (determined without regard to this section) exceeds the entity’s net capital gain for such year determined with regard to this section, and

‘‘(ii) there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities. For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation.

‘‘(C) EXCEPTION FOR QUALIFICATION PURPOSES.—This section shall not apply for purposes of sections 851(b) and 856(c).

‘‘(D) EXCEPTION FOR CERTAIN TAXES IMPOSED AT ENTITY LEVEL.—

‘‘(i) TAX ON FAILURE TO DISTRIBUTE ENTIRE GAIN.—If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D).

‘‘(ii) OTHER TAXES.—This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b).

‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN ENTITY.—

‘‘(A) REGULATED INVESTMENT COMPANIES.—Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as—

‘‘(i) the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to

‘‘(ii) the average of the fair market values of all assets held by such company at the close of each such month.

‘‘(B) REAL ESTATE INVESTMENT TRUSTS.—Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as—

‘‘(i) the fair market value of the indexed assets held by such trust at the close of such quarter, bears to

‘‘(ii) the fair market value of all assets held by such trust at the close of such quarter.

‘‘(C) RATIO OF 80 PERCENT OR MORE.—If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent.

‘‘(D) RATIO OF 20 PERCENT OR LESS.—If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero.

‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership.

‘‘(3) TREATMENT OF RETURN OF CAPITAL DISTRIBUTIONS.—Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired.

‘‘(4) QUALIFIED INVESTMENT ENTITY.—For purposes of this subsection, the term ‘qualified investment entity’ means—

‘‘(A) a regulated investment company (within the meaning of section 851), and

‘‘(B) a real estate investment trust (within the meaning of section 856).

‘‘(f) OTHER PASS-THRU ENTITIES.—

‘‘(1) PARTNERSHIPS.—

‘‘(A) IN GENERAL.—In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners.

‘‘(B) SPECIAL RULE IN THE CASE OF SECTION 754 ELECTIONS.—In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect—

‘‘(i) the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and

‘‘(ii) with respect to the transferee partner, the partnership’s holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment.

‘‘(2) S CORPORATIONS.—In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375.

‘‘(3) COMMON TRUST FUNDS.—In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants.

‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN DETERMINING LOSS ON SALE OF INTEREST IN ENTITY.—Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest.

‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—

‘‘(1) IN GENERAL.—This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis.

‘‘(2) RELATED PERSONS DEFINED.—For purposes of this section, the term ‘related persons’ means—

‘‘(A) persons bearing a relationship set forth in section 267(b), and ‘‘(B) persons treated as single employer under subsection (b) or (c) of section 414.

‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUSTMENT.—If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase.

‘‘(i) SPECIAL RULES.—For purposes of this section—

‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation—

‘‘(A) such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and

‘‘(B) such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof during the taxable year with respect to such property or stock is $1,000 or more.

A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section.

‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS THROUGHOUT HOLDING PERIOD.—The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset.

‘‘(3) TREATMENT OF CERTAIN DISTRIBUTIONS.—A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition.

‘‘(4) SECTION CANNOT INCREASE ORDINARY LOSS.—To the extent that (but for this paragraph) this section would create or increase a net ordinary loss to which section 1231(a)(2) applies or an ordinary loss to which any other provision of this title applies, such provision shall not apply. The taxpayer shall be treated as having a long-term capital loss in an amount equal to the amount of the ordinary loss to which the preceding sentence applies.

‘‘(5) ACQUISITION DATE WHERE THERE HAS BEEN PRIOR APPLICATION OF SUBSECTION (a)(1) WITH RESPECT TO THE TAXPAYER.—If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application.

‘‘(j) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

‘‘(k) TERMINATION.—For purposes of this section, the term ‘indexed asset’ shall not include any asset acquired after December 31, 2009.’’.

(b) CLERICAL AMENDMENT.—The table of sections for part II of subchapter O of chapter 1 is amended by striking the item relating to section 1023 and by inserting after the item relating to section 1022 the following new items:

‘‘Sec. 1022. Indexing of certain assets for purposes of determining gain or loss.

‘‘Sec. 1023. Cross references.’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to sales and other dispositions of indexed assets after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 112. REDUCED CAPITAL GAINS RATE FOR CORPORATIONS.

(a) IN GENERAL.—Section 1201 of the Internal Revenue Code of 1986 is amended by striking ‘‘35 percent’’ both places it appears and inserting ‘‘15 percent’’.

(b) ALTERNATIVE MINIMUM TAX.—Section 55(b) of such Code is amended by adding at the end the following new paragraph:

‘‘(5) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN OF CORPORATIONS.—The amount determined under paragraph (1)(B)(i) shall not exceed the sum of—

‘‘(A) the amount determined under such paragraph computed at the rates and in the same manner as if this paragraph had not been enacted on the taxable excess reduced by the net capital gain, plus

‘‘(B) the amount determined under section 1201.’’.

(c) TECHNICAL AMENDMENTS.—

(1) Section 1445(e)(1) of such Code, as amended by section 104, is amended by striking ‘‘25 percent (or, to the extent provided in regulations, 15 percent)’’ and inserting ‘‘15 percent’’.

(2) Section 1445(e)(2) of such Code, as so amended, is amended by striking ‘‘25 percent’’ and inserting ‘‘15 percent’’.

(3) Section 7518(g)(6)(A) of such Code is amended by striking ‘‘(34 percent in the case of a corporation)’’.

(4) Section 607(h)(6)(A) of the Merchant Marine Act, 1936 is amended by striking ‘‘(34 percent in the case of a corporation)’’.

(d) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2008.

(2) WITHHOLDING.—The amendment made by subsection (c)(2) shall apply to amounts paid after the date of the enactment of this Act.

Subtitle C—Other Provisions Related to Businesses

SEC. 121. REPEAL OF CERTAIN LIMITATIONS ON THE EXPENSING OF SECTION 179 PROPERTY.

(a) IN GENERAL.—Section 179 of the Internal Revenue Code of 1986 is amended by striking subsection (b) and by redesignating subsections (c), (d), and (e) as subsections (b), (c), and (d), respectively.

(b) EXPENSING OF SECTION 1250 PROPERTY.—Subparagraph (B) of section 179(c)(1) of such Code, as redesignated by subsection (a), is amended by inserting ‘‘or section 1250 property (as defined in section 1250(c))’’ after ‘‘section 1245 property (as defined in section 1245(a)(3))’’.

(c) CONFORMING AMENDMENTS.—

(1) Subsection (c) of section 179 of such Code, as redesignated by subsection (a), is amended by striking paragraphs (6) and (8), and by redesignating paragraphs (7), (9), and (10) as paragraphs (6), (7), and (8), respectively.

(2) Paragraph (6) of section 179(c) of such Code, as redesignated by paragraph (1) and subsection (a), is amended by striking ‘‘paragraphs (2) and (6)’’ and inserting ‘‘paragraph (2)’’.

(3) Section 179 of such Code, as amended by subsection (a), is amended by striking subsection (d).

(4) Sections 42(d)(2)(B)(i), 1397D(d)(1), 1400B(b)(4)(A)(i) and 1400F(b)(4)(A)(i) of such Code are each amended by striking ‘‘section 179(d)(2)’’ and inserting ‘‘section 179(c)(2)’’.

(5) Subclause (I) of section 42(d)(2)(D)(iii) of such Code is amended—

(A) by striking ‘‘section 179(d)’’ and inserting ‘‘section 179(c)’’, and

(B) by striking ‘‘section 179(d)(7)’’ and inserting ‘‘section 179(c)(6)’’.

(6)(A) Subpart B of part III of subchapter U of chapter 1 of such Code is hereby repealed.

(B) The table of subparts for such part III is amended by striking the item relating to subpart B.

(7)(A) Part III of subchapter X of chapter 1 of such Code is amended by striking section 1400J.

(B) The table of sections for such part is amended by striking the item relating to section 1400J.

(C) Paragraph (3) of section 1400E(b) of such Code is amended by striking ‘‘sections 1400F and 1400J’’ and inserting ‘‘section 1400F’’.

(8) Clause (iv) of section 1400L(b)(2)(A) of such Code is amended by striking ‘‘section 179(d)’’ and inserting ‘‘section 179(c)’’.

(9) Section 1400L of such Code is amended by striking subsection (f).

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2008.

SEC. 122. RESEARCH CREDIT MADE PERMANENT.

(a) IN GENERAL.—Section 41 of the Internal Revenue Code of 1986 (relating to credit for increasing research activities) is amended by striking subsection (h).

(b) CONFORMING AMENDMENT.—Paragraph (1) of section 45C(b) of such Code is amended by striking subparagraph (D).

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to amounts paid or incurred after December 31, 2009.

SEC. 123. 7-YEAR CARRYBACK OF NET OPERATING LOSSES.

(a) IN GENERAL.—Clause (i) section 172(b)(1)(A) of the Internal Revenue Code of 1986 is amended by striking ‘‘2 taxable years’’ and inserting ‘‘7 taxable years’’.

(b) CONFORMING AMENDMENTS.—

(1) Paragraph (1) of section 172(b) of such Code is amended by striking subparagraphs (F), (G), (H), (I), and (J).

(2) Section 172 of such Code is amended by striking subsections (i), (j), and (k) and by redesignating subsection (l) as subsection (i).

(c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to net operating losses for taxable years ending after December 31, 2007.

(2) ELECTION.—In the case of a net operating loss for a taxable year ending during 2008, any election made under section 172(b)(3) of the Internal Revenue Code of 1986 may (notwithstanding such section) be revoked before January 1, 2010.

Subtitle D—Other Provisions Relating to Individuals

SEC. 131. CHILD TAX CREDIT INCREASED AND MADE PERMANENT.

(a) INCREASED CREDIT.—Subsection (a) of section 24 of the Internal Revenue Code of 1986 is amended by striking ‘‘$1,000’’ and inserting ‘‘$5,000’’.

(b) INCREASED CREDIT NOT REFUNDABLE.—Subparagraph (A) of section 24(d)(1) of such Code is amended to read as follows:

‘‘(A) the credit which would be allowed under this section—

‘‘(i) without regard to this subsection and the limitation under section 26(a)(2) or subsection (b)(3), as the case may be, and

‘‘(ii) if subsection (a) were applied by substituting ‘$1,000’ for ‘$5,000’, or’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008.

SEC. 132. DISTRIBUTIONS NOT REQUIRED FROM INDIVIDUAL RETIREMENT PLANS AT AGE 70 1⁄2.

Paragraph (9) of section 401(a) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by adding at the end the following new subparagraph:

‘‘(I) EXCEPTION FOR INDIVIDUAL RETIREMENT PLANS.—The requirements of this paragraph shall not apply to any individual retirement plan for any calendar year after 2009.’’.

SEC. 133. NO IRA DISTRIBUTION DURING 2009 INCLUDED IN GROSS INCOME.

Subsection (d) of section 408 of the Internal Revenue Code of 1986 (relating to individual retirement accounts) is amended by adding at the end the following new paragraph:

‘‘(10) DISTRIBUTIONS DURING 2009.—

‘‘(A) IN GENERAL.—Gross income of an individual for the taxable year does not include any distribution during 2009 from an individual retirement plan (other than a plan described in subsection (k) or (p)) to the extent such distribution is otherwise includible in gross income.

‘‘(B) APPLICATION OF SECTION 72.—Notwithstanding section 72, in determining the extent to which an amount is treated as otherwise includible in gross income for purposes of subparagraph (A), the aggregate amount distributed from an individual retirement plan shall be treated as includible in gross income to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts from all individual retirement plans were distributed. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.’’.

TITLE II—ACROSS-THE-BOARD RESCISSIONS IN NON-DEFENSE DISCRETIONARY SPENDING FOR FISCAL YEAR 2009

SEC. 201. ACROSS-THE-BOARD RESCISSIONS IN NON-DEFENSE DISCRETIONARY SPENDING FOR FISCAL YEAR 2009.

(a) ACROSS-THE-BOARD RESCISSIONS.—There is hereby rescinded an amount equal to 1 percent of—

(1) the budget authority provided (or obligation limitation imposed) for fiscal year 2009 for any nondefense discretionary account in any fiscal year 2009 appropriation Act;

(2) the budget authority provided in any advance appropriation for fiscal year 2009 for any non-defense discretionary account in any prior fiscal year appropriation Act; and

(3) the contract authority provided in fiscal year 2009 for any program that is subject to a limitation contained in any fiscal year 2009 appropriation Act for any non-defense discretionary account.

(b) NON-DEFENSE DISCRETIONARY ACCOUNT.—For purposes of subsection (a), the term ‘‘non-defense discretionary account’’ means any discretionary account, other than—

(1) any account included in a Department of Defense Appropriations Act;

(2) any account included in a Military Quality of Life and Veterans Affairs Appropriations Act; or

(3) any account for Department of Energy defense activities included in an Energy and Water Development Appropriations Act.

(c) PROPORTIONATE APPLICATION.—Any rescission made by subsection (a) shall be applied proportionately—

(1) to each discretionary account and each item of budget authority described in such subsection; and

(2) within each such account and item, to each program, project, and activity (with programs, projects, and activities as delineated in the appropriation Act or accompanying reports for the relevant fiscal year covering such account or item, or for accounts and items not included in appropriation Acts, as delineated in the most recently submitted President’s budget).

(d) SUBSEQUENT APPROPRIATION LAWS.—In the case of any fiscal year 2009 appropriation Act enacted after the enactment of this section, any rescission required by subsection (a) shall take effect immediately after the enactment of such Act.

(e) OMB REPORT.—Within 30 days after the enactment of this section (or, if later, 30 days after the enactment of any fiscal year 2009 appropriation Act), the Director of the Office of Management and Budget shall submit to the Committees on Appropriations of the House of Representatives and the Senate a report specifying the account and amount of each rescission made pursuant to subsection (a).

TITLE III—INCREASED INCENTIVES FOR EDUCATION

SEC. 301. INCREASED DEDUCTION FOR QUALIFIED HIGHER EDUCATION EXPENSES.

(a) IN GENERAL.—Paragraph (2) of section 222(b) of the Internal Revenue Code of 1986 (relating to dollar limitations on qualified tuition and related expenses) is amended to read as follows:

‘‘(2) DOLLAR LIMITATIONS.—

‘‘(A) IN GENERAL.—In the case of any taxable year beginning after 2008, the applicable dollar amount shall be equal to—

‘‘(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $75,000 ($150,000 in the case of a joint return), $6,000,

‘‘(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $90,000 ($180,000 in the case of a joint return), $2,000, and

‘‘(iii) in the case of any other taxpayer, zero.

‘‘(B) ADJUSTED GROSS INCOME.—For purposes of this paragraph, adjusted gross income shall be determined—

‘‘(i) without regard to this section and sections 199, 911, 931, and 933, and

‘‘(ii) after application of sections 86, 135, 137, 219, 221, and 469.’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2008.

SEC. 302. INCREASED DEDUCTION FOR INTEREST ON STUDENT LOANS.

(a) INCREASED DEDUCTION.—Paragraph (1) of section 223(b) of the Internal Revenue Code of 1986 (relating to interest on education loans) is amended to read as follows:

‘‘(1) MAXIMUM DEDUCTION.—Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed $3,750.’’.

(b) EXPANDED INCOME ELIGIBILITY.—Subclause (II) of section 223(b)(2)(B)(i) of such Code is amended by striking ‘‘$50,000 ($100,000’’ and inserting ‘‘$75,000 ($150,000’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008.