[Congressional Record Volume 143, Number 31 (Wednesday, March 12, 1997)]
[Extensions of Remarks]
[Page E453]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         RETURN CAPITAL TO THE AMERICAN PEOPLE ACT (RECAP ACT)

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                           HON. JENNIFER DUNN

                             of washington

                    in the house of representatives

                       Wednesday, March 12, 1997

  Ms. DUNN of Washington. Mr. Speaker, I rise today to introduce the 
Return Capital to the American People Act (ReCAP Act). This legislation 
provides a capital gains reduction for both individuals and 
corporations and will do more to boost our Nation's economy, more to 
create jobs, more to enhance U.S. competitiveness worldwide, and more 
to increase savings and investment than any other single legislative 
change we can enact.
  For established, successful businesses, for struggling entrepreneurs, 
and for middle-class families across the country, this measure 
represents the most serious effort to unlock billions of dollars in 
investment providing for expanded growth and job creation.
  While there are many reasons to support a reduction in the capital 
gains rate, I would like to highlight what I believe to be the most 
compelling case for enactment of the ReCAP Act.
  A low capital gains rate benefits all Americans. This bill is fair to 
all income groups and sectors of our economy. Many of the so-called 
rich who would benefit from a cut in capital gains taxes are only rich 
for one year. A family in Eatonville that sells its house, an owner in 
Issaquah who sells a small business, a worker in Bellevue selling stock 
received through an employee stock option, and a retiree in Auburn 
selling an asset and planning to live off the proceeds would all be 
considered wealthy on current tax distribution tables. For example, a 
review by the Joint Committee on Taxation on capital gains realizations 
for the period 1979-1983 shows that nearly 44 percent of tax returns 
claiming a capital gain during the 5-year period claimed only one 
capital gain. Most of these people aren't rich, regardless of what 
statistics say. They merely have one year of inflated income because 
they realized a big capital gain.
  Furthermore, an analysis of 1993 tax returns found that nearly 50 
percent of the tax returns reporting capital gains were filed by 
taxpayers with less than $40,000 in adjusted gross income. Of tax 
returns claiming a capital gain, nearly 60 percent of those returns are 
filed by taxpayers with less than $50,000 in adjusted gross income.
  Low capital gains rate is important for our future and our Nation's 
ability to save and invest. Americans do not save enough. If you look 
at our tax laws, you will see why. Instead of encouraging people to 
save, the tax code often punishes people who save and invest. This is 
primarily due to the fact that the income tax hits savings more than 
once--first when income is earned and again when interest and dividends 
on the investment supported by the original savings are received. This 
system is inherently unfair because the individual or company that 
saves and invests pays more taxes over time than if all income were 
consumed and no savings took place. We need to change this. Without 
savings, a person cannot buy a house, a business cannot purchase new 
equipment, and our economy cannot create jobs. Unless we can raise our 
national savings rate, our standard of living, and our children's and 
grandchildren's standards of living will not grow.
  Lowering the capital gains rate unlocks investment and America's true 
economic potential. High capital gains taxes can prevent someone from 
selling an asset and paying the tax. This is the lock-in effect: when a 
person will not sell an investment and reinvest the proceeds in a 
higher paying alternative if the capital gains taxes he or she would 
owe exceed the expected higher return on the original investment.
  This lock-in effect limits economic growth and job creation. Capital 
stays locked in an investment instead of being free to go to a person 
who wants to hire new employees in her consulting business. Lower 
capital gains taxes will reduce the lock-in effect and free up capital 
for small businesses, first-time home buyers, and entrepreneurs.
  Lower capital gains will increase Federal revenues and thus help 
reach the goal of a balanced budget. History indicates that lower 
capital gains taxes have a positive impact on Federal revenues. During 
the period of 1978 to 1985 the marginal Federal tax rate on capital 
gains was cut from almost 50 percent to 20 percent--but total 
individual capital gains tax receipts increased from $9.1 billion to 
$26.5 billion. After surging to $326 billion in 1986 (the year before 
the 1986 rate increase took effect), capital gains realizations have 
trended down and remained at less than $130 billion per year in the 
1990's.
  Given the increases in the stock market, inflation, and growth of the 
economy since the late 1980's, realizations and taxes paid are 
certainly being depressed by the current high capital gains rates.


                               CONCLUSION

  Rather than discouraging American workers and businesses, the Federal 
Government ought to simply get out of the way. Lower capital gains 
taxes--as embodied in this bill--leave more vital capital in the hands 
of businesses, investors, and entrepreneurs. They know a lot more than 
the Federal Government ever can or will about creating jobs and 
products in a competitive marketplace.
  History proves that capital gains tax reduction is the right course 
to take. In the past, reductions always have boosted the Nation's 
economy and increased tax revenues to the Federal Government. If a goal 
of this Congress is to pass legislation promoting economic opportunity 
and growth in America, then common sense suggests that we enact the 
ReCAP Act.

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