[Congressional Record Volume 143, Number 25 (Monday, March 3, 1997)]
[Extensions of Remarks]
[Pages E360-E361]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                THE LONG-TERM CAPITAL GAINS SAVINGS ACT

                                 ______
                                 

                            HON. KEN BENTSEN

                                of texas

                    in the house of representatives

                         Monday, March 3, 1997

  Mr. BENTSEN. Mr. Speaker, I rise 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 
investments and encourage Americans to save for the future.
  This legislation is identical to S. 306, introduced by Senator 
Wendell Ford, 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 has been 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 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 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 gain tax rate locks-

[[Page E361]]

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 long 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 run-up in the capital or credit 
markets. Further, by ratcheting the rate downward the longer the 
holding period, we help offset the inflation penalty which results with 
a fixed rate. And we avoid the difficultly 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 effect 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 help 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, common-sense capital gains tax relief legislation which is 
fully paid for can and should be part of this balanced budget.

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