Sec. 1001. Simplification of individual income tax rates
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Section 1 is amended to read as follows: There is hereby imposed on the income of every individual a tax equal to the sum of— 10 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount, 25 percent of so much of the taxable income as exceeds the 25-percent bracket threshold amount, plus 10 percent of so much of the modified adjusted gross income (as defined in section 2) as exceeds the 35-percent bracket threshold amount. For purposes of this section— The term 25-percent bracket threshold amount means— in the case of a joint return or surviving spouse, $71,200, in the case of any other individual (other than an estate or trust), one-half of the dollar amount in effect under subparagraph (A), and in the case of an estate or trust, zero.
The term 35-percent bracket threshold amount means— in the case of a joint return or surviving spouse, $450,000, in the case of any other individual (other than an estate or trust), $400,000, and in the case of an estate or trust, $12,000. In the case of any taxable year beginning after 2014, each dollar amount in subsections (b)(1)(A), (b)(2)(A), (b)(2)(B), (b)(2)(C), (e)(3)(A), and (e)(3)(B) shall be increased by an amount equal to— such dollar amount, multiplied by the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins.
If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. For purposes of this subsection— The cost-of-living adjustment for any calendar year is the percentage (if any) by which— the C-CPI-U for the preceding calendar year, exceeds the normalized CPI for calendar year 2012. For purposes of any provision which provides for the substitution of a year after 2012 for 2012 in subparagraph (A)(ii), subparagraph
(A)shall be applied by substituting C-CPI-U for normalized CPI in clause (ii). For purposes of this subsection, the normalized CPI for any calendar year is the product of— the CPI for such calendar year, multiplied by the C-CPI-U transition multiple. For purposes of this subsection, the term C-CPI-U transition multiple means the amount obtained by dividing— the C-CPI-U for calendar year 2013, by the CPI for calendar year 2013. For purposes of this subsection— The term C-CPI-U means the Chained Consumer Price Index for All Urban Consumers (as published by the Bureau of Labor Statistics of the Department of Labor). The values of the Chained Consumer Price Index for All Urban Consumers taken into account for purposes of determining the cost-of-living adjustment for any calendar year under this subsection shall be the latest values so published as of the date on which such Bureau publishes the initial value of the Chained Consumer Price Index for All Urban Consumers for the month of August for the preceding calendar year. The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year. For purposes of this subsection— The term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used. The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year. In the case of any child to whom this subsection applies for any taxable year— the 25-percent bracket threshold amount shall not be more than the taxable income of such child for the taxable year reduced by the net unearned income of such child, and the 35-percent bracket threshold amount shall not be more than the sum of— the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus the dollar amount in effect under subsection (b)(2)(C) for the taxable year. This subsection shall apply to any child for any taxable year if— such child— has not attained age 18 before the close of the taxable year, or has attained age 18 before the close of the taxable year and is described in paragraph (3), either parent of such child is alive at the close of the taxable year, and such child does not file a joint return for the taxable year. A child is described in this paragraph if— such child— has not attained age 19 before the close of the taxable year, or is a student (within the meaning of section 7705(f)(2)) who has not attained age 24 before the close of the taxable year, and such child’s earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 7705(c)(1)(D) after the application of section 7705(f)(5) (without regard to subparagraph
(A)thereof)) for such taxable year. For purposes of this subsection— The term net unearned income means the excess of— the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over the sum of— the amount in effect for the taxable year under section 63(c)(4)(A) (relating to limitation on standard deduction in the case of certain dependents), plus the greater of the amount described in subclause
(I)or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i). The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year. The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 5 percent of the excess (if any) of— modified adjusted gross income, over the applicable dollar amount. The increase determined under paragraph
(1)with respect to any taxpayer for any taxable year shall not exceed 15 percent of the lesser of— the taxpayer’s taxable income for such taxable year, or the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year. For purposes of this subsection, the term applicable dollar amount means— in the case of a joint return or a surviving spouse, $300,000, in the case of any other individual, $250,000. Paragraph
(1)shall not apply in the case of an estate or trust. For purposes of any provision of law which refers to the highest rate of tax specified in this section (or any subsection of this section), such highest rate shall be treated as being 35 percent. . Section 2 is amended by striking subsection (b), by redesignating subsections (c), (d), and (e), as subsections (d), (e), and (f), respectively, and by inserting after subsection
(a)the following new subsections: For purposes of section 1— The term modified adjusted gross income means adjusted gross income— increased by— any amount excluded from gross income under sections 911, 931, and 933, the excess (if any) of— amounts of interest received or accrued by the taxpayer during the taxable year which are exempt from tax, over amounts disallowed as a deduction by reason of section 163(d)(1)(A) or 171(a)(2), any exclusion from gross income with respect to the cost described in section 6051(a)(14) (without regard to subparagraphs
(A)and
(B)thereof), any deduction allowable under section 162(l) (relating to special rules for health insurance costs of self-employed individuals), any annual addition (as defined in section 415(c)(2)) to a defined contribution plan which is not includible in, or which is deductible from, the gross income of the individual for the taxable year, any deduction allowable under section 223, and the excess (if any) of— the social security benefits of the individual for the taxable year (as defined in section 86(d)), over the amount included in the gross income of such individual for such taxable year under section 86, and decreased by— any deduction allowed under section 170 (and in the case of an estate or trust, any deduction allowed under section 642(c)), and qualified domestic manufacturing income. For purposes of this subsection, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that— the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and the deductions allowable under sections 642(b), 651, and 661, shall be treated as allowable in arriving at adjusted gross income. Under regulations, appropriate adjustments shall be made in the application of part I of subchapter J of this chapter to take into account the application of this paragraph. For purposes of subsection (b), the term qualified domestic manufacturing income for any taxable year means an amount equal to the excess (if any) of— the taxpayer’s domestic manufacturing gross receipts for such taxable year, over the sum of— the cost of goods sold that are allocable to such receipts, and other expenses, losses, or deductions, which are properly allocable to such receipts. The Secretary shall prescribe rules for the proper allocation of items described in paragraph
(1)for purposes of determining qualified domestic manufacturing income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic manufacturing gross receipts. For purposes of determining costs under clause
(i)of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic manufacturing gross receipts. In the case of any property described in subparagraph
(A)that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph
(A)shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture. For purposes of this subsection— The term domestic manufacturing gross receipts means the gross receipts of the taxpayer which are derived from— any lease, rental, license, sale, exchange, or other disposition of tangible personal property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States, or in the case of a taxpayer engaged in the active conduct of a construction trade or business, construction of real property performed in the United States by the taxpayer in the ordinary course of such trade or business if such real property is placed in service after December 31, 2014. Such term shall not include gross receipts of the taxpayer which are derived from— the sale of food and beverages prepared by the taxpayer at a retail establishment, the transmission or distribution of electricity, natural gas, or potable water, and the lease, rental, license, sale, exchange, or other disposition of land. Gross receipts derived from the manufacture or production of any property described in subparagraph (A)(i) shall be treated as meeting the requirements of subparagraph (A)(i) if— such property is manufactured or produced by the taxpayer pursuant to a contract with the Federal Government, and the Federal Acquisition Regulation requires that title or risk of loss with respect to such property be transferred to the Federal Government before the manufacture or production of such property is complete. In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 for such taxable year, then this paragraph shall be applied by treating each reference in subparagraph
(A)to the United States as including the Commonwealth of Puerto Rico. The term tangible personal property shall not include computer software or any property described in paragraph
(3)or
(4)of section 168(f). The term domestic manufacturing gross receipts shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person. For purposes of clause (i), a person shall be treated as related to another person if such persons are treated as a single employer under subsection
(a)or
(b)of section 52 or subsection
(m)or
(o)of section 414, except that determinations under subsections
(a)and
(b)of section 52 shall be made without regard to section 1563(b). Domestic manufacturing gross receipts shall not include any amount which is properly allocable to the taxpayer’s net earnings from self employment (determined after any reduction provided under section 1402(m)). Domestic manufacturing gross receipts shall not include any amount attributable to— a qualified change in method of accounting (as defined in section 3301(d)(2) of the Tax Reform Act of 2014 ), or any other change in method of accounting which is required by the amendments made by such Act. Except as provided in subparagraph (B), in the case of a partnership or S corporation, each partner or shareholder shall take into account such person’s allocable share of each item described in subparagraph
(A)or
(B)of paragraph
(1)(determined without regard to whether the items described in such subparagraph
(A)exceed the items described in such subparagraph (B)). In the case of a publicly traded partnership described in section 7704(c), each partner shall not take into account any allocable share of any item referred to in subparagraph (A). In the case of a trust or estate, the items referred to in subparagraph
(A)(as determined therein) shall be apportioned between the beneficiaries and the fiduciary (and among the beneficiaries) under regulations prescribed by the Secretary. The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance— which prevent more than 1 taxpayer from taking into account the same qualified domestic manufacturing income, and which require or restrict the allocation of items under paragraph
(6)and require such reporting for purposes of carrying out such paragraph as the Secretary determines appropriate. In the case of any taxable year beginning before January 1, 2017, the term qualified domestic manufacturing income shall be an amount equal to the product of the qualified domestic manufacturing income determined without regard to this paragraph, multiplied by— in the case of any taxable year beginning in 2015, 33 percent, and in the case of any taxable year beginning in 2016, 67 percent. . Subsection
(a)of section 15 is amended by striking this chapter and inserting section 11 . Section 15 is amended by striking subsections
(d)and
(f)and by redesignating subsection
(e)as subsection (d). Section 15(d), as redesignated by subparagraph (A), is amended by striking section 1 or 11(b) and inserting section 11(b) . Subchapter A of chapter 1 is amended— by redesignating section 12 as section 13, by redesignating section 15 (as amended by this subsection) as section 12 and moving such section from part III of such subchapter to after section 11 in part II of such subchapter, by striking part III, and by amending the table of sections for part II of such subchapter by redesignating the item relating to section 12 as an item relating to section 13 and by inserting after the item relating to section 11 the following new item: Sec. 12. Effect of changes. . Section 6013(c) is amended by striking sections 15, 443, and 7851(a)(1)(A) and inserting sections 443 and 7851(a)(1)(A) . The amendments made by this section shall apply to taxable years beginning after December 31, 2014.