[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 213 Introduced in House (IH)]







                                    


104th CONGRESS
  1st Session
                                H. R. 213

  To amend the Internal Revenue Code of 1986 to provide for a maximum 
  long-term capital gains rate of 15 percent and indexing of certain 
                capital assets, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 4, 1995

  Mr. Crane introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to provide for a maximum 
  long-term capital gains rate of 15 percent and indexing of certain 
                capital assets, and for other purposes.

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

SECTION 1. REDUCTION IN INDIVIDUAL CAPITAL GAINS RATE.

    (a) General Rule.--Subsection (h) of section 1 of the Internal 
Revenue Code of 1986 (relating to maximum capital gains rate) is 
amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, then the tax imposed by this section shall 
        not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                the taxable income reduced by the net capital gain, 
                plus
                    ``(B) a tax equal to the sum of--
                            ``(i) 7.5 percent of so much of the net 
                        capital gain as does not exceed--
                                    ``(I) the maximum amount of taxable 
                                income to which the 15-percent rate 
                                applies under the table applicable to 
                                the taxpayer, reduced by
                                    ``(II) the taxable income to which 
                                subparagraph (A) applies, plus
                            ``(ii) 15 percent of the net capital gain 
                        in excess of the net capital gain to which 
                        clause (i) applies.
            ``(2) Transitional rule.--In the case of a taxable year 
        which begins before January 1, 1995, and ends after December 
        31, 1994, the amount of the net capital gain for purposes of 
        paragraph (1) shall not exceed the net capital gain determined 
        by only taking into account gains and losses properly taken 
        into account for the portion of the taxable year after December 
        31, 1994.''
    (b) Technical Amendments.--
            (1) Paragraph (1) of section 170(e) of such Code is amended 
        by striking ``the amount of gain'' in the material following 
        subparagraph (B)(ii) and inserting ``\13/28\ (\19/34\ in the 
        case of a corporation) of the amount of gain''.
            (2)(A) The second sentence of section 7518(g)(6)(A) of such 
        Code is amended by striking ``28 percent (34 percent in the 
        case of a corporation)'' and inserting ``15 percent''.
            (B) The second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, is amended by striking ``28 percent 
        (34 percent in the case of a corporation)'' and inserting ``15 
        percent''.

SEC. 2. REDUCTION IN CORPORATE CAPITAL GAINS RATE.

    (a) General Rule.--Section 1201 of the Internal Revenue Code of 
1986 (relating to alternative tax for corporations) is amended by 
redesignating subsection (b) as subsection (c), and by striking 
subsection (a) and inserting the following:
    ``(a) General Rule.--If for any taxable year a corporation has a 
net capital gain, then, in lieu of the tax imposed by section 11, 511, 
or 831(a) (whichever applies), there is hereby imposed a tax (if such 
tax is less than the tax imposed by such section) which shall consist 
of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        net capital gain, at the same rates and in the same manner as 
        if this subsection had not been enacted, plus
            ``(2) a tax of 15 percent of the net capital gain.
    ``(b) Transitional Rule.--In the case of a taxable year which 
begins before January 1, 1995, and ends after December 31, 1994, the 
amount of the net capital gain for purposes of subsection (a) shall not 
exceed the net capital gain determined by only taking into account 
gains and losses properly taken into account for the portion of the 
taxable year after December 31, 1994.''
    (b) Technical Amendments.--
            (1) Clause (iii) of section 852(b)(3)(D) of such Code is 
        amended by striking ``66 percent'' and inserting ``85 
        percent''.
            (2) Paragraphs (1) and (2) of section 1445(e) of such Code 
        are each amended by striking ``34 percent'' and inserting ``15 
        percent''.

SEC. 3. REDUCTION OF MINIMUM TAX RATE ON CAPITAL GAINS.

    (a) Taxpayers Other Than Corporations.--Clause (i) of section 
55(b)(1)(A) of the Internal Revenue Code of 1986 (relating to tentative 
minimum tax) is amended by striking subclauses (I) and (II) and 
inserting the following:
                                    ``(I) 15 percent of the lesser of 
                                the net capital gain (determined with 
                                the adjustments provided in this part 
                                and, to the extent applicable, the 
                                limitations of section 1(h)(2)) or the 
                                taxable excess,
                                    ``(II) 26 percent of so much (if 
                                any) of the taxable excess (reduced by 
                                the net capital gain, as so determined) 
                                as does not exceed $175,000, plus
                                    ``(III) 28 percent of so much (if 
                                any) of the taxable excess (reduced by 
                                the net capital gain, as so determined) 
                                as exceeds $175,000.''
    (b) Corporations.--Clause (i) of section 55(b)(1)(B) of such Code 
is amended to read as follows:
                            ``(i) the sum of--
                                    ``(I) 15 percent of the lesser of 
                                the net capital gain (determined with 
                                the adjustments provided in this part 
                                and, to the extent applicable, the 
                                limitations of section 1201(b)) or so 
                                much of the alternative minimum taxable 
                                income for the taxable year as exceeds 
                                the exemption amount, plus
                                    ``(II) 20 percent of the amount (if 
                                any) by which the excess of the 
                                alternative minimum taxable income for 
                                the taxable year over exemption amount 
                                exceeds the net capital gain (as so 
                                determined), reduced by''.

SEC. 4. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR 
              LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basic rules of general 
application) is amended by inserting after section 1021 the following 
new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
              GAIN OR LOSS.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted basis.--Except 
        as provided in paragraph (2), if an indexed asset which has 
        been held for more than 1 year is sold or otherwise disposed 
        of, for purposes of this title the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The deduction for 
        depreciation, depletion, and amortization shall be determined 
        without regard to the application of paragraph (1) to the 
        taxpayer or any other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, the term 
        `indexed asset' means--
                    ``(A) stock in a corporation, and
                    ``(B) tangible property (or any interest therein), 
                which is a capital asset of property used in the trade 
                or business (as defined in section 1231(b)).
            ``(2) Certain property excluded.--For purposes of this 
        section, the term `indexed asset' does not include--
                    ``(A) Creditor's interest.--Any interest in 
                property which is in the nature of a creditor's 
                interest.
                    ``(B) Options.--Any option or other right to 
                acquire an interest in property.
                    ``(C) Net lease property.--In the case of a lessor, 
                net lease property (within the meaning of subsection 
                (h)(1)).
                    ``(D) Certain preferred stock.--Stock which is 
                fixed and preferred as to dividends and does not 
                participate in corporate growth to any significant 
                extent.
                    ``(E) Stock in certain corporations.--Stock in--
                            ``(i) an S corporation (within the meaning 
                        of section 1361),
                            ``(ii) a personal holding company (as 
                        defined in section 542), and
                            ``(iii) a foreign corporation.
            ``(3) Exception for stock in foreign corporation which is 
        regularly traded on national or regional exchange.--Clause 
        (iii) of paragraph (2)(E) shall not apply to stock in a foreign 
        corporation the stock of which is listed on the New York Stock 
        Exchange, the American Stock Exchange, or any domestic regional 
        exchange for which quotations are published on a regular basis 
        other than--
                    ``(A) stock of a foreign investment company (within 
                the meaning of section 1246(b)), and
                    ``(B) stock in a foreign corporation held by a 
                United States person who meets the requirements of 
                section 1248(a)(2).
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) Indexed basis.--The indexed basis for any asset is--
                    ``(A) the adjusted basis of the asset, multiplied 
                by
                    ``(B) the applicable inflation ratio.
            ``(2) Applicable inflation ratio.--The applicable inflation 
        ratio for any asset is the percentage arrived at by dividing--
                    ``(A) the gross domestic product deflator for the 
                calendar quarter in which the disposition takes place, 
                by
                    ``(B) the gross domestic product deflator for the 
                calendar quarter in which the asset was acquired by the 
                taxpayer (or, if later, the calendar quarter ending 
                December 31, 1994).
        The applicable inflation ratio shall not be taken into account 
        unless it is greater than 1. The applicable inflation ratio for 
        any asset shall be rounded to the nearest one-tenth of 1 
        percent.
            ``(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 first revision thereof).
            ``(4) Secretary to publish tables.--The Secretary shall 
        publish tables specifying the applicable inflation ratios for 
        each calendar quarter.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Treatment as separate asset.--In the case of any 
        asset, the following shall be treated as a separate asset:
                    ``(A) a substantial improvement to property,
                    ``(B) in the case of stock of a corporation, a 
                substantial contribution to capital, and
                    ``(C) 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.--
                    ``(A) In general.--The applicable inflation ratio 
                shall be appropriately reduced for calendar months at 
                any time during which the asset was not an indexed 
                asset.
                    ``(B) Certain short sales.--For purposes of 
                applying subparagraph (A), an asset shall be treated as 
                not an indexed asset for any short sale period during 
                which the taxpayer or the taxpayer's spouse sells short 
                property substantially identical to the asset. For 
                purposes of the preceding sentence, the short sale 
                period begins on the day after the substantially 
                identical property is sold and ends on the closing date 
                for the sale.
            ``(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.
            ``(6) Collapsible corporations.--The application of section 
        341(a) (relating to collapsible corporations) shall be 
        determined without regard to this section.
    ``(e) Certain Conduit Entities.--
            ``(1) Regulated investment companies; real estate 
        investment trusts; common trust funds.--
                    ``(A) In general.--Stock in a qualified investment 
                entity shall be an indexed asset for any calendar month 
                in the same ratio as the fair market value of the 
                assets held by such entity at the close of such month 
                which are indexed assets bears to the fair market value 
                of all assets of such entity at the close of such 
                month.
                    ``(B) Ratio of 90 percent or more.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 90 percent or 
                more, such ratio for such month shall be 100 percent.
                    ``(C) Ratio of 10 percent or less.--If the ratio 
                for any calendar month determined under subparagraph 
                (A) would (but for this subparagraph) be 10 percent or 
                less, such ratio for such month shall be zero.
                    ``(D) Valuation of assets in case of real estate 
                investment trusts.--Nothing in this paragraph shall 
                require a real estate investment trust to value its 
                assets more frequently than once each 36 months (except 
                where such trust ceases to exist). The ratio under 
                subparagraph (A) for any calendar month for which there 
                is no valuation shall be the trustee's good faith 
                judgment as to such valuation.
                    ``(E) Qualified investment entity.--For purposes of 
                this paragraph, the term `qualified investment entity' 
                means--
                            ``(i) a regulated investment company 
                        (within the meaning of section 851),
                            ``(ii) a real estate investment trust 
                        (within the meaning of section 856), and
                            ``(iii) a common trust fund (within the 
                        meaning of section 584).
            ``(2) Partnerships.--In the case of a partnership, the 
        adjustment made under subsection (a) at the partnership level 
        shall be passed through to the partners.
            ``(3) Subchapter s corporations.--In the case of an 
        electing small business corporation, the adjustment under 
        subsection (a) at the corporate level shall be passed through 
        to the shareholders.
    ``(f) 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.
    ``(g) Transfers to Increase Indexing Adjustment or Depreciation 
Allowance.--If any person transfers cash, debt, or any other property 
to another person and the principal purpose of such transfer is--
            ``(1) to secure or increase an adjustment under subsection 
        (a), or
            ``(2) to increase (by reason of an adjustment under 
        subsection (a)) a deduction for depreciation, depletion, or 
        amortization,
the Secretary may disallow part or all of such adjustment or increase.
    ``(h) Definitions.--For purposes of this section--
            ``(1) Net lease property defined.--The term `net lease 
        property' means leased real property where--
                    ``(A) the term of the lease (taking into account 
                options to renew) was 50 percent or more of the useful 
                life of the property, and
                    ``(B) for the period of the lease, the sum of the 
                deductions with respect to such property which are 
                allowable to the lessor solely by reason of section 162 
                (other than rents and reimbursed amounts with respect 
                to such property) is 15 percent or less of the rental 
                income produced by such property.
            ``(2) Stock includes interest in common trust fund.--The 
        term `stock in a corporation' includes any interest in a common 
        trust fund (as defined in section 584(a)).
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of such chapter 1 of such Code is amended by inserting 
after the item relating to section 1021 the following new item:

                              ``Sec. 1022. Indexing of certain assets 
                                        for purposes of determining 
                                        gain or loss.''
    (c) Adjustment to Apply for Purposes of Determining Earnings and 
Profits.--Subsection (f) of section 312 of such Code (relating to 
effect on earnings and profits of gain or loss and of receipt of tax-
free distributions) is amended by adding at the end thereof the 
following new paragraph:
            ``(3) Effect on earnings and profits of indexed basis.--

                                ``For substitution of indexed basis for 
adjusted basis in the case of the disposition of certain assets after 
December 31, 1994, see section 1022(a)(1).''.

SEC. 5. INDEXING OF LIMITATION ON CAPITAL LOSSES OF INDIVIDUALS.

    Section 1211 of the Internal Revenue Code of 1986 (relating to 
limitation on capital losses) is amended by adding at the end thereof 
the following new subsection:
    ``(c) Indexation of Limitation on Noncorporate Taxpayers.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1994, the $3,000 and $1,500 
        amounts under subsection (b)(1) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the applicable inflation adjustment for the 
                calendar year in which the taxable year begins.
            ``(2) Applicable inflation adjustment.--For purposes of 
        paragraph (1), the applicable inflation adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the gross domestic product deflator for the 
                last calendar quarter of the preceding calendar year, 
                exceeds
                    ``(B) the gross domestic product deflator for the 
                last calendar quarter of 1993.
        For purposes of this paragraph, the term `gross domestic 
        product deflator' has the meaning given such term by section 
        1022(c)(3).''

SEC. 6. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this Act shall apply to sales or exchanges occurring 
after December 31, 1994, in taxable years ending after such date.
    (b) Indexing of Loss Limitation.--The amendments made by section 5 
of this Act shall apply to taxable years beginning after December 31, 
1994.
                                 <all>
HR 213 IH----2