A bill to amend the Internal Revenue Code of 1954 to provide for the establishment of, and the deduction of contributions to, education savings accounts.

Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction for contributions to a savings account established to pay the educational expenses (tuition, supplies, meals, and lodging) of the taxpayer or the taxpayer's dependent child at an institution of higher education or a vocational school. Limits the amount of such deduction to $2,000 (adjusted for inflation) for each account per calendar year. Provides that no account may have more than one beneficiary and that no individual may be a beneficiary of more than one account.

Requires the trustee of an education savings account to transfer five percent of the amount of any contribution to the trust to a State educational fund which is established by State law, the assets of which are used to provide scholarship assistance to individuals attending educational institutions within the State.

Permits a tax exclusion for income accumulated in such education savings accounts as long as such amounts are used exclusively for educational expenses. Sets forth penalties for the use of account funds for other than educational purposes.

Requires that the trustee of an education savings account file reports with the Secretary of the Treasury on the maintenance of the account. Imposes penalties for not filing required reports.

Extends the deduction for contributions to an education savings account to taxpayers who do not otherwise itemize deductions.

Includes in the gross income of account beneficiaries over a ten-year period beginning at age 25 an amount equal to ten percent of the amounts paid or used on their behalf for educational expenses.