[Congressional Record Volume 143, Number 23 (Thursday, February 27, 1997)]
[House]
[Pages H693-H694]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                THE LONG-TERM CAPITAL GAINS SAVINGS ACT

  The SPEAKER pro tempore (Mr. Collins). Under a previous order of the 
House, the gentleman from Texas [Mr. Bentsen] is recognized for 5 
minutes.
  Mr. BENTSEN. Mr. Speaker, I rise today to introduce legislation, the 
Long-Term Capital Gains Savings Act, that takes an innovative and I 
believe economically correct approach to capital gains tax policy. This 
legislation seeks to reward long-term economically productive 
investment and encourage Americans to save for the future.
  I might also add that I have been one who has voted consistently for 
a balanced budget and said we should put off tax cuts until we balance 
the budget. I still think that is a prudent policy, but as we see both 
the administration and the leadership of the Congress moving in the 
other direction, I think it is also prudent that we lay out markers of 
what would be good tax policy.
  This legislation is identical to S. 306 introduced by Senator Wendell 
Ford in the other body and would provide for the maximum capital gains 
tax rate to be adjusted downward the longer an investment is held by 
the taxpayer. For every year an asset is held, the tax rate would be 
reduced by 2 percentage points down to a rate of 14 percent after 8 
years or more. The top rate would remain at 28 percent for investments 
held less than 2 years. I am attaching a chart outlining this sliding

[[Page H694]]

scale and will include it for the Record at the conclusion of my 
remarks.
  Mr. Speaker, I also want to point out that this legislation as 
drafted would apply only to individual taxpayers and not to corporate 
taxpayers. I believe this is good fiscal and tax policy because it 
limits the cost of this legislation and targets the tax relief to help 
middle-income families most in need of this assistance.
  For many years we have heard many in business, agriculture, 
economics, and politics argue that a high capital gains tax rate locks 
in capital and discourages investment that might otherwise be put to 
work in more productive investments and thus spur greater economic 
activity.
  While I have questioned whether capital has remained on the 
sidelines, I do believe that the low differential between marginal 
income tax rates and the 28 percent capital gains rate along with the 
effective tax of inflation does lock up capital and discourage some 
investment, particularly in long-term instruments that might otherwise 
occur. This legislation is aimed to address such inefficiencies in the 
current code while not providing a windfall for short-term speculation 
and adding to the deficit.
  First, it will reward individual investors who make economically 
productive long-term investments rather than short-term speculative 
ones. I believe someone who holds an investment for a period of time 
should receive more favorable tax treatment on their gains than someone 
who turns over assets on a short-term basis. The investment in a 
fledgling company which takes many years to develop but could become 
the next Microsoft should receive a more favorable benefit than a gain 
earned over a 6-month period due to a runup in the capital or credit 
markets. Further, by racheting the rate downward the longer the holding 
period, we help offset the inflation penalty which results with a fixed 
rate. And we avoid the difficulty of indexing against the original 
basis. This legislation will reward investments in small businesses and 
agriculture, which require long-term commitment and are our Nation's 
primary engines of economic growth and job creation. It may also affect 
long-term interest rates in a positive manner. It will encourage 
Americans to make the investments necessary to start and expand such 
businesses.
  Second, this legislation will provide incentives for Americans to 
save for the future and prepare for their retirement. There is 
widespread agreement among economists that our savings rate is too low, 
slowing our economy and putting at risk the comfortable retirement 
Americans desire. This legislation will happy address this need for 
increased savings and provide a more secure retirement for Americans in 
the future.
  Most importantly, this legislation will achieve these benefits 
without putting the goal of a balanced budget out of reach. Broader 
capital gains tax relief would be simply too costly, requiring 
offsetting revenue increases or budget cuts that are unrealistic and 
imprudent. If we try to do too much, we will put a realistic balanced 
budget out of reach, encouraging the use of gimmicks and rosy 
scenarios. This legislation represents the kind of capital gains tax 
relief we can afford in the context of balancing the budget.
  This legislation takes a responsible, balanced approach that will 
encourage prudent investment and savings and reward those who invest 
for the long-term, while still allowing us to balance the Federal 
budget. I still believe that our first priority must be to balance the 
Federal budget. However, I am also of the belief that inclusion of a 
modest, commonsense capital gains tax relief legislation which is fully 
paid for can and should be part of the balanced budget.
  Mr. Speaker, the chart referred to in my remarks is as follows:


                  Sliding Scale Capital Gains Proposal


                                                            Percent \1\
Assets held for the following period:
  More than 1 year...................................................28
  More than 2 years..................................................26
  More than 3 years..................................................24
  More than 4 years..................................................22
  More than 5 years..................................................20
  More than 6 years..................................................18
  More than 7 years..................................................16
  More than 8 years..................................................14

\1\ Would be subject to the lower of the current law capital gains rate 
or the rate listed.

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