[Congressional Record Volume 140, Number 94 (Tuesday, July 19, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 19, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                 SMALL INVESTORS TAX RELIEF ACT OF 1994

                                 ______


                        HON. DONALD A. MANZULLO

                              of illinois

                    in the house of representatives

                         Tuesday, July 19, 1994

  Mr. MANZULLO. Mr. Speaker, I rise today to introduce the Small 
Investors Tax Relief Act of 1994. This bill is designed to accomplish 
two purposes. First, it will strengthen this Nation's precarious 
economic condition by stimulating economic growth and creating new 
jobs. Second, it will bring a measure of common sense and fairness to 
the tax burdens of the 80 to 90 million American small investors who 
are the lifeblood of our economic system.
  The Small Investors Tax Relief Act of 1994 is very simple. It has 
only three provisions. First, it would exempt from Federal taxation the 
first $2,000 of interest and dividend income earned annually by 
individuals. Second, it would exempt the first $50,000 of an 
individual's capital gains from Federal income tax annually. Finally, 
it would index capital assets held for at least 1 year so that 
investors no longer would be required to pay taxes on gains caused by 
inflation.
  Mr. Speaker, the economic health of our Nation is in serious trouble. 
Some of my colleagues may be surprised to hear me say this when all 
about us are the signs of economic growth and revival. But our national 
savings rate is dropping to dangerously low levels.
  Much, if not most, of the economic growth our country has experienced 
lately is due to consumer spending. While consumer spending can do 
wonders for the short-term economic prognosis, it will most likely not 
be sustainable. The evidence is that consumers are borrowing from the 
future to spend more now.
  The Wall Street Journal reported last December that not only are 
consumers charging more purchases to their credit cards, they have let 
their savings rate slide lower and lower. From a 5.2-percent rate in 
1992, the savings rate for 1993 was just over 4 percent as of November. 
And, the savings rate is dropping further now because our spending is 
growing faster than our income. Moreover, the new withholding rates 
from last year's record tax hike for higher income Americans have now 
taken effect, which will surely put a crimp on how much wealthier 
consumers save.
  The result, Mr. Speaker, is that our savings rate is dropping into 
the danger zone. As my colleagues know, the U.S. savings rate has been 
far below that of our major competitors since the 1970's, when our 
savings rate was in the 9 to 10-percent range. By 1992, it had dropped 
to 5.2 percent. As of November of last year, it was down to around 4 
percent, a level many economists believe is in the danger zone. All of 
our major trading partners have savings rates significantly higher than 
ours.
  According to the Treasury Department, 65 percent of taxpayers with 
capital gains have ordinary income under $50,000 and over 25 percent 
have ordinary income under $20,000. Only about 5 percent of taxpayers 
with capital gains have incomes above $200,000. The benefits of this 
bill are targeted to taxpayers in the lower- and middle-income classes.
  The current high tax on capital gains encourages wealthy taxpayers to 
hold on to assets with unrealized gains. When the capital gains rate 
was over 40 percent in the mid-1970's, taxpayers in the top 1 percent 
of income accounted for just 33 percent of all taxable capital gains. 
When the capital gains tax rate was cut to 20 percent in 1981, the top 
1 percent accounted for 55 percent of all realized capital gains.
  In 1985, Americans with incomes over $500,000 per year paid $12 
billion in capital gains taxes. This amount had dropped to $10 billion 
in 1991, adjusted for inflation.
  When the capital gains tax rate jumped from 20 percent to 28 percent 
in 1987, seed capital for new businesses began to dry up. Between 1986 
and 1991, venture capital financing of small businesses fell from $4.2 
billion to $1.4 billion.
  Mr. Speaker, there is an estimated $8 trillion of unrealized capital 
in the United States. And as we all know, the long-term prosperity of 
our economy depends on the availability of low-cost capital for 
business formation and job creation. Taxpayers can generally choose 
when they want to unleash this tremendous amount of capital. Our tax 
policies are holding them back, to the detriment of economic growth and 
job creation.
  My bill will teach young people the value of work and savings by 
removing the current law's bias against young workers' savings. 
Furthermore, it will stimulate the economy and spur job creation by 
encouraging investors to sell capital assets and invest in new business 
enterprises that create new jobs. This legislation would make the 
United States more competitive internationally by lowering our capital 
gains tax rate closer to the rates of our major trading partners.
  By unlocking billions of frozen assets, this proposal will lower the 
costs of capital and make it much more readily available. The increased 
economic activity resulting from this will certainly broaden the tax 
base and increase revenues. As a minimum, this feedback effect will 
partially, if not fully, offset any revenue losses that may occur.

                          ____________________