Text: H.R.5725 — 111th Congress (2009-2010)All Bill Information (Except Text)

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Introduced in House (07/13/2010)


111th CONGRESS
2d Session
H. R. 5725

To amend the Internal Revenue Code of 1986 to repeal taxes on the income of senior citizens and to improve income security of senior citizens.


IN THE HOUSE OF REPRESENTATIVES
July 13, 2010

Mr. Posey (for himself and Mrs. Blackburn) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned


A BILL

To amend the Internal Revenue Code of 1986 to repeal taxes on the income of senior citizens and to improve income security of senior citizens.

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 “Senior Citizens Income Security Act of 2010”.

SEC. 2. Repeal of 1993 income tax increase on Social Security benefits.

(a) Restoration of prior law formula.—Subsection (a) of section 86 of the Internal Revenue Code of 1986 is amended to read as follows:

“(a) In general.—Gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes Social Security benefits in an amount equal to the lesser of—

“(1) one-half of the Social Security benefits received during the taxable year, or

“(2) one-half of the excess described in subsection (b)(1).”.

(b) Repeal of adjusted base amount.—Subsection (c) of section 86 of such Code is amended to read as follows:

“(c) Base amount.—For purposes of this section, the term ‘base amount’ means—

“(1) except as otherwise provided in this subsection, $25,000,

“(2) $32,000 in the case of a joint return, and

“(3) zero in the case of a taxpayer who—

“(A) is married as of the close of the taxable year (within the meaning of section 7703) but does not file a joint return for such year, and

“(B) does not live apart from his spouse at all times during the taxable year.”.

(c) Conforming amendments.—

(1) Subparagraph (A) of section 871(a)(3) of such Code is amended by striking “85 percent” and inserting “50 percent”.

(2)(A) Subparagraph (A) of section 121(e)(1) of the Social Security Amendments of 1983 (Public Law 98–21) is amended—

(i) by striking “(A) There” and inserting “There”;

(ii) by striking “(i)” immediately following “amounts equivalent to”; and

(iii) by striking “, less (ii)” and all that follows and inserting a period.

(B) Paragraph (1) of section 121(e) of such Act is amended by striking subparagraph (B).

(C) Paragraph (3) of section 121(e) of such Act is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).

(D) Paragraph (2) of section 121(e) of such Act is amended in the first sentence by striking “paragraph (1)(A)” and inserting “paragraph (1)”.

(d) Maintenance of transfers to Hospital Insurance Trust Fund.—

(1) IN GENERAL.—There are hereby appropriated to the Hospital Insurance Trust Fund established under section 1817 of the Social Security Act amounts equal to the reduction in revenues to the Treasury by reason of the enactment of this section. Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had this section not been enacted.

(2) REPORTS.—The Secretary of the Treasury or the Secretary’s delegate shall annually report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate the amounts and timing of the transfers under this subsection.

(e) Effective dates.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2009.

(2) SUBSECTION (c)(1).—The amendment made by subsection (c)(1) shall apply to benefits paid after December 31, 2009.

(3) SUBSECTION (c)(2).—The amendments made by subsection (c)(2) shall apply to tax liabilities for taxable years beginning after December 31, 2009.

SEC. 3. Eliminate mandatory withdrawals on IRAs.

(a) In general.—Subsection (a) of section 401 of the Internal Revenue Code of 1986 is amended by striking paragraph (9).

(b) Conforming amendments.—

(1) Section 403(b)(10) of such Code is amended by striking “ sections 401(a)(9)” and inserting “ section”.

(2) Subsections (a)(6) and (b)(3) of section 408 of such Code are both amended by striking “section 401(a)(9) and”.

(3) Section 408A(c)(5) of such Code is amended to read as follows:

“(5) MANDATORY DISTRIBUTION RULES NOT TO APPLY BEFORE DEATH.—Notwithstanding subsections (a)(6) and (b)(3) of section 408 (relating to required distributions), the incidental death benefit requirements of section 401(a) shall not apply to any Roth IRA.”.

(4) Section 402(c) of such Code is amended—

(A) in paragraph (4) by striking subparagraph (B), by inserting “and” at the end of subparagraph (A), and by redesignating subparagraph (C) as subparagraph (B), and

(B) in paragraph (11)(A)—

(i) by inserting “(as in effect on the day before the date of the enactment of this phrase)” after “section 401(a)(9)(E)”, and

(ii) by inserting “and” at the end of clause (i), by striking “, and” at the end of clause (ii) and inserting a period, and by striking clause (iii).

(5) Section 409(d) of such Code is amended by striking “to any distribution required under section 401(a)(9) or”.

(6) Section 457(d) of such Code is amended—

(A) in paragraph (1) by striking subparagraph (B), by inserting “and” at the end of subparagraph (A), and be redesignating subparagraph (C) as subparagraph (B), and

(B) by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).

(7) Section 4974(b) of such Code is amended by striking “401(a)(9)”.

SEC. 4. Eliminate payroll tax for Medicare and Social Security beneficiaries.

(a) In general.—Section 3101 of the Internal Revenue Code of 1986 is amended by adding at the end the following:

“(d) Exception.—Subsections (a) and (b) shall not apply to any individual who—

“(1) is entitled to benefits under part A of title XVIII of the Social Security Act or is enrolled under part B of such title, or

“(2) is entitled to a monthly insurance benefit under title II of the Social Security Act based on such individual’s wages and self-employment income.”.

(b) Self-Employment.—Section 1401 of such Code is amended by adding at the end the following new subsection:

“(d) Exception.—In the case of any individual who—

“(1) is entitled to benefits under part A of title XVIII of the Social Security Act or is enrolled under part B of such title, or

“(2) is entitled to a monthly insurance benefit under title II of the Social Security Act based on such individual’s wages and self-employment income,

subsections (a) and (b) shall be applied for the taxable year by substituting one-half of the percent otherwise specified in such subsections.”.

(c) Effective dates.—

(1) The amendment made by subsection (a) shall apply to wages paid after December 31, 2009.

(2) The amendment made by subsection (b) shall apply to enumeration paid in taxable years ending after the date of the enactment of this Act.

(d) Trust Funds Held Harmless.—There is hereby appropriated (out of any money in the Treasury not otherwise appropriated) for each fiscal year to each fund under the Social Security Act an amount equal to the reduction in the transfers to such fund for such fiscal year by reason of the amendments made by this section.

SEC. 5. Authority to elect voucher program instead of Medicare part A entitlement.

(a) In general.—Section 226 of the Social Security Act (42 U.S.C. 426) is amended by adding at the end the following new subsections:

“(k) Waiver of entitlement and election of voucher program.—

“(1) IN GENERAL.—Notwithstanding the previous provisions of this section, the Secretary shall establish a procedure under which an individual otherwise entitled under subsection (a) to benefits under part A of title XVIII may waive such entitlement and be automatically enrolled in the Medicare Alternative Voucher Program established under subsection (l) if—

“(A) at the time such waiver is made the individual—

“(i) has a health savings account described in subsection (d) of section 223 of the Internal Revenue Code of 1986; and

“(ii) is enrolled under a high deductible health plan, as defined in subsection (c)(1) of such section; and

“(B) the individual waives such entitlement during the individual’s initial enrollment period described in section 1837(d).

“(2) TREATMENT UNDER THE INTERNAL REVENUE CODE OF 1986.—An individual who waives entitlement under paragraph (1) shall not be treated as entitled to benefits under title XVIII for purposes of section 223(b)(7) of the Internal Revenue Code of 1986.

“(3) INELIGIBILITY FOR PART B OR D BENEFITS.—An individual shall not be eligible for benefits under part B or D of title XVIII during the period for which the individual waives entitlement under part A of such title under paragraph (1).

“(4) TERMINATION OF WAIVER AND REENROLLMENT UNDER MEDICARE PROGRAM.—The Secretary shall establish a procedure under which an individual who waives entitlement under paragraph (1) may terminate such waiver during an annual period that shall be the same as the annual general enrollment period described in section 1837(e). For purposes of applying parts B and D of title XVIII, such individual shall be treated as if the individual were entitled to benefits under part A of such title as of the date such individual terminates the waiver under this paragraph. An individual who has terminated such a waiver may not subsequently make such a waiver.

“(l) Medicare Alternative Voucher Program.—

“(1) ESTABLISHMENT OF PROGRAM.—The Secretary shall establish a program to be known as the Medicare Alternative Voucher Program (in this subsection referred to as the ‘voucher program’) consistent with this subsection.

“(2) AUTOMATIC ENROLLMENT.—An individual who waives entitlement under subsection (k)(1) shall be enrolled in the voucher program for the period during which such waiver is in effect.

“(3) AMOUNT OF VOUCHER.—

“(A) AMOUNT BASED ON AGE COHORT.—

“(i) IN GENERAL.—Subject to clause (ii), for each month that an individual within an age cohort is enrolled in the voucher program, the Secretary shall provide a voucher to such individual in an amount that is equal to the monthly actuarial rate for that month computed under section 1818(d)(1) multiplied by the age cohort adjustment factor for such age cohort under subparagraph (B).

“(ii) MONTHLY LIMIT.—The amount of a voucher provided to an individual for a month may not exceed $200.

“(B) AGE COHORT ADJUSTMENT FACTOR.—For each age cohort the Secretary shall determine an age cohort adjustment factor equal to the ratio of—

“(i) the monthly actuarial rate described in section 1818(d)(1) as determined by the Secretary for individuals in such age cohort, to

“(ii) the monthly actuarial rate described in such section.

“(C) AGE COHORT DEFINED.—For purposes of this paragraph, an ‘age cohort’ means a group of individuals whose age falls within a span of 5 consecutive years, consistent with the following:

“(i) The first such span begins at age 65.

“(ii) Other spans follow consecutively.

“(4) PERMISSIBLE USE OF VOUCHER.—A voucher under paragraph (3) may be used only for the following purposes:

“(A) As a contribution into a health savings account established by such individual, as described in subsection (k)(1)(A).

“(B) For payment of premiums for enrollment of such individual under a high deductible health plan described in such subsection.

“(5) EFFECT OF SUBSEQUENT TERMINATION OF WAIVER.—If an individual terminates a waiver under subsection (k)(3), the enrollment of such individual in the voucher program shall be terminated on the date on which the termination becomes effective.”.

(b) Amendment of Internal Revenue Code of 1986.—Paragraph (7) of section 223(b) of the Internal Revenue Code of 1986 (relating to Medicare eligible individuals) is amended to read as follows:

“(7) MEDICARE ELIGIBLE INDIVIDUALS.—

“(A) IN GENERAL.—The limitation under this subsection for any month with respect to an individual shall be zero for any month such individual is entitled to benefits under title XVIII of the Social Security Act.

“(B) MEDICARE ALTERNATIVE VOUCHER PROGRAM.—In the case of an individual who is enrolled in the Medicare Alternative Voucher Program under section 226(l) of the Social Security Act, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by the amount of the voucher described in paragraph (3) of such section which is contributed to a health savings account of such individual.”.

(c) Effective date.—

(1) IN GENERAL.—The amendment made by subsection (a) shall take effect on the date that is six months after the date of the enactment of this Act and shall apply to an individual who becomes entitled to benefits under part A of title XVIII of the Social Security Act on or after such date of the enactment.

(2) AMENDMENT OF INTERNAL REVENUE CODE OF 1986.—The amendment made by subsection (b) shall apply to months ending after the date referred to in paragraph (1), in taxable years ending after such date.

SEC. 6. Partial exclusion of interest, dividends, and capital gains received by individuals.

(a) In general.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to amounts specifically excluded from gross income) is amended by inserting after section 115 the following new section:

“SEC. 116. Partial exclusion for interest, dividends, and capital gains received by individuals.

“(a) In general.—Gross income does not include the sum of amounts received during the taxable year by an individual as—

“(1) dividends from a domestic corporation,

“(2) interest, and

“(3) capital gains.

“(b) Limitation.—The aggregate amount excluded under subsection (a) for any taxable year shall not exceed $250 ($500 in the case of a joint return), as identified by the taxpayer on the return of tax for such year.

“(c) Interest.—For purposes of this section, the term ‘interest’ means—

“(1) interest on deposits with a bank (as defined in section 581),

“(2) amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares, by—

“(A) a mutual savings bank, cooperative bank, domestic building and loan association, industrial loan association or bank, or credit union, or

“(B) any other savings or thrift institution which is chartered and supervised under Federal or State law, the deposits or accounts in which are insured under Federal or State law or which are protected and guaranteed under State law,

“(3) interest on—

“(A) evidences of indebtedness (including bonds, debentures, notes, and certificates) issued by a domestic corporation in registered form, and

“(B) to the extent provided in regulations prescribed by the Secretary, other evidences of indebtedness issued by a domestic corporation of a type offered by corporations to the public,

“(4) interest on obligations of the United States, a State, or a political subdivision of a State (not excluded from gross income of the taxpayer under any other provision of law), and

“(5) interest attributable to participation shares in a trust established and maintained by a corporation established pursuant to Federal law.

“(d) Dividends.—For purposes of this section, the term ‘dividend’ means qualified dividend income (as defined in paragraph (11)(B) of section 1(h)) (determined without regard to paragraph (13) thereof).

“(e) Special rules.—For purposes of this section—

“(1) DISTRIBUTIONS FROM REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.—Subsection (a) shall apply with respect to distributions by—

“(A) regulated investment companies to the extent provided in section 854(c), and

“(B) real estate investment trusts to the extent provided in section 857(c)(3).

“(2) DISTRIBUTIONS BY A TRUST.—For purposes of subsection (a), the amount of interest properly allocable to a beneficiary under section 652 or 662 shall be deemed to have been received by the beneficiary ratably on the same date that the interest was received by the estate or trust.

“(3) CERTAIN NONRESIDENT ALIENS INELIGIBLE FOR EXCLUSION.—In the case of a nonresident alien individual, subsection (a) shall apply only—

“(A) in determining the tax imposed for the taxable year pursuant to section 871(b)(1) and only in respect of interest which are effectively connected with the conduct of a trade or business within the United States, or

“(B) in determining the tax imposed for the taxable year pursuant to section 877(b).”.

(b) Conforming amendments.—

(1) The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 115 the following new item:


“Sec. 116. Partial exclusion for interest, dividends, and capital gains received by individuals.”.


(2) Subsection (h) of section 1 of such Code is amended by adding at the end the following:

“(13) COORDINATION WITH PARTIAL EXCLUSION FOR INTEREST, DIVIDENDS, AND CAPITAL GAINS RECEIVED BY INDIVIDUALS.—For purposes of this section, dividends and capital gains excluded from gross income by section 116 shall not be taken into account.”.

(3) Paragraph (2) of section 265(a) of such Code is amended by inserting before the period at the end thereof the following: “, or to purchase or carry obligations or shares, or to make deposits, to the extent the interest thereon is excludable from gross income under section 116”.

(4) Subsection (c) of section 584 of such Code is amended by adding at the end thereof the following new sentence: “The proportionate share of each participant in the amount of interest received by the common trust fund and to which section 116 applies shall be considered for purposes of such section as having been received by such participant.”.

(5) Subsection (a) of section 643 of such Code is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:

“(7) INTEREST.—There shall be included the amount of any interest excluded from gross income pursuant to section 116.”.

(6) Section 854 of such Code is amended by adding at the end thereof the following new subsection:

“(c) Treatment under section 116 for other dividends and taxable interest.—

“(1) IN GENERAL.—For purposes of section 116, in the case of any dividend (other than a dividend described in subsection (a)) received from a regulated investment company which meets the requirements of section 852 for the taxable year in which it paid the dividend—

“(A) the entire amount of such dividend shall be treated as interest if the aggregate interest received by such company during the taxable year equals or exceeds 75 percent of its gross income,

“(B) the entire amount of such dividend shall be treated as interest if the aggregate interest received by such company during the taxable year equals or exceeds 75 percent of its gross income, or

“(C) if subparagraphs (A) and (B) do not apply, a portion of such dividend shall be treated as a dividend (and a portion of such dividend shall be treated as interest) based on the portion of the company's gross income which consists of aggregate dividends or aggregate interest, as the case may be.

For purposes of the preceding sentence, gross income and aggregate interest received shall each be reduced by so much of the deduction allowable by section 163 for the taxable year as does not exceed aggregate interest received for the taxable year.

“(2) NOTICE TO SHAREHOLDERS.—The amount of any distribution by a regulated investment company which may be taken into account as a dividend and as interest for purposes of the exclusion under section 116 shall not exceed the amount so designated by the company in a written notice to its shareholders mailed not later than 45 days after the close of its taxable year.

“(3) DEFINITIONS.—For purposes of this subsection—

“(A) The term ‘gross income’ does not include gain from the sale or other disposition of stock or securities.

“(B) The term ‘aggregate dividends received’ includes only dividends described in section 116(d).

“(C) The term ‘aggregate interest received’ includes only interest described in section 116(c).”.

(7) Subsection (c) of section 857 of such Code is amended by adding at the end the following new paragraph:

“(3) TREATMENT AS INTEREST.—

“(A) IN GENERAL.—For purposes of section 116, in the case of a dividend (other than a capital gain dividend, as defined in subsection (b)(3)(C)) received from a real estate investment trust which meets the requirements of this part for the taxable year in which it paid the dividend—

“(i) such dividend shall be treated as interest if the aggregate interest received by the real estate investment trust for the taxable year equals or exceeds 75 percent of its gross income, or

“(ii) if clause (i) does not apply, the portion of such dividend which bears the same ratio to the amount of such dividend as the aggregate interest received bears to gross income shall be treated as interest.

“(B) ADJUSTMENTS TO GROSS INCOME AND AGGREGATE INTEREST RECEIVED.—For purposes of paragraph (2)—

“(i) gross income does not include the net capital gain,

“(ii) gross income and aggregate interest received shall each be reduced by so much of the deduction allowable by section 163 for the taxable year (other than for interest on mortgages on real property owned by the real estate investment trust) as does not exceed aggregate interest received by the taxable year, and

“(iii) gross income shall be reduced by the sum of the taxes imposed by paragraphs (4), (5), and (6) of section 857(b).

“(C) AGGREGATE INTEREST RECEIVED.—The term ‘aggregate interest received’ includes only interest described in section 116(c).

“(D) NOTICE TO SHAREHOLDERS.—The amount of any distribution by a real estate investment trust which may be taken into account as interest for purposes of the exclusion under section 116 shall not exceed the amount so designated by the trust in a written notice to its shareholders mailed not later than 45 days after the close of its taxable year.”.

(8) The heading for subsection (c) of section 857 of such Code is amended by inserting “and interest” after “dividends”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2009.