[Congressional Record Volume 143, Number 18 (Wednesday, February 12, 1997)]
[Senate]
[Pages S1307-S1308]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FORD:
  S. 306. A bill to amend the Internal Revenue Code of 1986 to provide 
a decrease in the maximum rate of tax on capital gains which is based 
on the length of time the taxpayer held the capital asset; to the 
Committee on Finance.


                       CAPITAL GAINS LEGISLATION

  Mr. FORD. Mr. President, today I am introducing capital gains 
legislation which I believe has the possibility of breaking through the 
impasse we have had on this issue for the last several years. My 
proposal is based not on political rhetoric, but on conversations I 
have had with constituents who support a commonsense approach on this 
issue.
  My legislation would provide a sliding scale for capital gains 
relief, lowering the rate at which capital gains are taxed, based on 
how long the assets have been held. For every year an asset has been 
held, the applicable rate would be reduced by 2 percentage points. 
Assets held for more than 1 year would be taxed at no higher than the 
current 28 percent. Assets held for 2 years would be taxed at no higher 
than 26 percent. And so on, down to a rate of 14 percent. Assets held 
for more than 8 years would be taxed at a maximum rate of 14 percent.
  I am introducing the legislation with three objectives in mind. 
First, I believe our efforts should be directed toward helping family 
farms and small family businesses. We do not need additional proposals 
to assist real estate speculators or those who specialize in putting 
Wall Street deals together. Most capital gains proposals we have 
considered in recent years provide a disproportionate benefit to those 
making six-figure salaries and above. It should be clear by now that we 
cannot pass a capital gains proposal that primarily benefits the 
wealthy. In my experience, those middle-class families that should be 
the focus of the debate get lost in the shuffle.
  Second, using this proposal, I intend to work with others interested 
in the issue to attempt to develop a bipartisan coalition with middle 
class families in mind. There are few lasting legislative changes that 
have not been developed in a bipartisan way. This is particularly true 
in the area of tax policy. Capital gains reform has been a hot button 
campaign issue for several years, often being used in an attempt to 
secure partisan advantage. I think it is time to move beyond this 
stage. There are plenty of Members on both sides of the aisle 
interested in providing capital gains relief. I think we should attempt 
to find middle ground that takes into account the views of both 
Democrats and Republicans interested in this issue.
  Third, we must face budget realities. It appears likely that any 
capital gains proposal which can pass this Congress must be included in 
an overall balanced budget package as part of a reasonable level of tax 
relief. Some of the capital gains proposals considered during the last 
Congress were estimated by the Congressional Budget Office to result in 
more than $40 billion being added to the Federal deficit over 7 years, 
requiring enormous offsets. Even the modified proposal included in the 
reconciliation package vetoed by the President was scored by CBO at 
more than $35 billion. I believe this is more than we can afford in the 
context of balancing the budget. It also seems to be far more than what 
is needed to target relief to middle-class families, and especially 
farmers and small businesses.
  I am also aware of the criticism by some on the other side of the 
aisle that certain Democratic capital gains proposals are picking and 
choosing among certain types of assets, and therefore picking and 
choosing winners and losers. My proposal avoids that criticism. It 
would apply to all types of assets that are covered under current law. 
It is nondiscriminatory. However, because of the sliding-scale benefit 
based on the holding period, I believe the impact will be to provide 
the greatest benefit to middle-class families like those farm families 
and small businesses I have in mind.
  So, Mr. President, it is my hope that this concept will be taken 
seriously in the spirit of reaching a bipartisan compromise on this 
issue. Mr. President, I ask unanimous consent to have printed in the 
Record a chart which demonstrates the operation of this capital gains 
proposal.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 306

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

     SECTION 1. DECREASE IN MAXIMUM CAPITAL GAINS RATE BASED ON 
                   TAXPAYER'S HOLDING PERIOD.

       (a) In General.--Section 1(h) 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 greater of--
       ``(i) taxable income reduced by the amount of the net 
     capital gain, or
       ``(ii) the 15-percent bracket amount, plus
       ``(B) a tax equal to the sum of the amounts determined by 
     applying the applicable percentage to long-term capital gain 
     taken into account in computing net capital gain.
       ``(2) 15-Percent bracket amount.--For purposes of this 
     subsection--
       ``(A) In general.--The term `15-percent bracket amount' 
     means the amount of taxable income taxed at a rate below 28 
     percent, determined without taking into account long-term 
     capital gain attributable to a capital asset for which the 
     taxpayers' holding period exceeds 8 years.
       ``(B) LIFO ordering rule.--For purposes of applying 
     paragraph (1)(B), the determination as to which long-term 
     capital gain (if any) was taken into account in determining 
     the 15-percent bracket amount shall be made on the basis of 
     the holding period of the capital assets to which such gain 
     is attributable, beginning with assets with the shortest 
     holding period.
       ``(3) Applicable percentage.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `applicable percentage' means, 
     with respect to any long-term capital gain, 28 percent 
     reduced (but not below 14 percent) by 2 percentage points for 
     each year (or fraction thereof) by which the taxpayer's 
     holding period for the capital asset to which the gain is 
     attributable exceeds 2 years.
       ``(B) Limitation on gain to which percentage applies.--
     Subparagraph (A) shall not apply to long-term capital gain on 
     any sale or exchange to the extent the gain exceeds the 
     excess (if any) of--
       ``(i) net capital gain for the taxable year, over

[[Page S1308]]

       ``(ii) the sum of--

       ``(I) that portion of the 15-percent bracket amount which 
     is attributable to net capital gain, plus
       ``(II) other long-term capital gain to which paragraph 
     (1)(B) applies and which is attributable to capital assets 
     for which the taxpayer's holding period is longer.

       ``(C) Application to classes of gain.--Subject to such 
     rules as the Secretary may prescribe, all long-term capital 
     gain from the sale or exchange of capital assets with the 
     same holding period (determined on the basis of the number of 
     years or fractions thereof) shall be treated as gain from the 
     sale or exchange of a single capital asset.
       ``(4) Investment income.--For purposes of this subsection, 
     the net capital gain for any taxable year shall be reduced 
     (but not below zero) by the amount which the taxpayer elects 
     to take into account as investment income for the taxable 
     year under section 163(d)(4)(B)(iii).''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.
                                  ____


                FORD SLIDING SCALE CAPITAL GAINS PROPOSAL
------------------------------------------------------------------------
                                                               Would be
                                                              subject to
                                                              the lower
                                                                of the
                                                             current law
            Assets held for the following period               capital
                                                              gains rate
                                                             or the rate
                                                                listed
                                                              below (in
                                                               percent)
------------------------------------------------------------------------
More than:
    1 year.................................................           28
    2 years................................................           26
    3 years................................................           24
    4 years................................................           22
    5 years................................................           20
    6 years................................................           18
    7 years................................................           16
    8 years................................................           14
------------------------------------------------------------------------

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