[Congressional Record Volume 144, Number 26 (Thursday, March 12, 1998)]
[Senate]
[Page S1884]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Breaux, Mr. Torricelli, Mr. Lott, 
        Mr. Hatch, Mr. Murkowski, Mr. Dewine, Mr. Hagel, Mr. Kyl, Mr. 
        Abraham, Mr. Ashcroft, Mr. Cochran, and Mr. Helms):
  S. 1748. A bill to amend the Internal Revenue Code of 1986 to provide 
that the reduced capital gains tax rates apply to long-term capital 
gain from property with at least a 1-year holding period; to the 
Committee on Finance.


              THE CAPITAL GAINS SIMPLIFICATION ACT OF 1998

  Mr. MACK. Mr. President, today I am introducing the Capital Gains 
Simplification Act of 1998. This legislation will significantly improve 
the tax treatment of capital gains and would benefit all Americans. It 
would restore the one-year holding period (from the current 18 month 
requirement) to qualify for the lower capital gains tax rates the 
Republican Congress enacted last year. This simple change would 
dramatically reduce tax compliance costs, lessen the punitive lock-in 
effect on capital, and yield additional federal revenue in the first 
two years.
  Capital investment is the key to economic growth and our future 
standard of living. That's why we successfully fought to give the 
American people significant tax relief on their savings and investments 
last year. We reduced the top rate on capital gains from 28 percent to 
20 percent. Typical taxpayers in the 15 percent tax bracket had their 
capital gains tax rate lowered even more--to 10 percent.
  Unfortunately, in order for taxpayers to qualify for lower capital 
gains tax rates, the Clinton Administration dictated an increase in the 
holding period from one year to 18 months when the Taxpayer Relief Act 
of 1997 was in conference. This arbitrary new holding period creates an 
awkward rate structure in which gains held between 12 and 18 months are 
taxed at higher rates. This dramatically and unnecessarily complicates 
tax calculations and compliance costs for taxpayers, investment firms, 
and the IRS.
  For most Americans, their tax accounting and investment changes are 
timed on a one year basis, thus making the new 18-month holding period 
out of sync with investment and tax filing standards. This longer 
holding period also reduces economic efficiency and the flow of capital 
by artificially locking-in investments for longer durations. 
Additionally, Americans who may need to sell an investment before 
holding it 18 months--for instance, to pay a tuition bill or medial 
expense--are punished with higher tax rates under current law. This 
makes little sense and must be corrected.
  My bill would restore a straightforward one-year holding period for 
capital gains. It would greatly simplify the tax compliance burden, 
reduce punitive taxation, and improve economic efficiency. Simply 
stated, it would make it easier and more rewarding for Americans to 
save and invest for their futures.
  New entrepreneurial activity that boosts economic growth takes money, 
and the demands for capital are the greatest they have been in decades. 
New technologies are opening the door to greater productivity gains and 
new products. We must ensure that the adequate savings and investment 
needed to fuel new technologies and productivity gains are available.

  Any tax on capital gains represents punitive double taxation, and 
often taxes illusory gains due simply to inflation. And capital gains 
are not just for the ``rich.'' According to IRS tax return data, 54 
percent of taxpayers reporting capital gains have incomes below 
$50,000--meaning more than 8 million households earning less than 
$50,000 can benefit from the capital gains tax relief Congress provided 
last year. Many senior citizens depend on cashing in their capital 
gains as their major source of income during retirement. More than 80 
percent of capital gains are reported by households with less than 
$100,000 in income.
  It's no secret that a large and growing number of ordinary middle-
income Americans are directly or indirectly invested in the stock 
market. They invest directly by buying shares themselves or indirectly 
through savings in mutual funds, IRA accounts, or pension plans at 
work. The proportion of families who own stocks has increased 
dramatically. By simplifying the tax treatment of capital gains, this 
legislation would encourage families to save even more and would make 
it easier for them to buy a home, prepare for retirement, or pay for 
their children's education.
  Let's not forget that capital gains taxes are largely a voluntary 
tax, since investors decide when they sell their assets. Investors 
should be allowed to freely move their money into new investments 
without paying punitive tax rates due to arbitrary holding periods. 
Locking up capital with longer holding periods can only diminish our 
chances of achieving our greatest growth potential.
  By returning the capital gains holding period to one year, the 
Capital Gains Simplification Act would cut tax compliance costs, but 
more importantly, it would help unleash greater investment 
opportunities, create jobs, and boost growth to the benefit of all 
Americans.
  Mr. President, I ask unanimous consent that this bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1748

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Capital Gains Simplification 
     Act of 1998''.

     SEC. 2. 1-YEAR HOLDING PERIOD FOR ANY LONG-TERM CAPITAL GAIN.

       (a) In General.--Section 1(h)(4) of the Internal Revenue 
     Code of 1986 (defining adjusted net capital gain) is amended 
     by adding ``and'' at the end of subparagraph (B), by striking 
     ``, and'' at the end of subparagraph (C) and inserting a 
     period, and by striking subparagraph (D).
       (b) Conforming Amendments.--Section 1(h) of the Internal 
     Revenue Code of 1986 is amended--
       (1) in paragraph (6), by striking subparagraph (A) and 
     inserting the following:
       ``(A) In general.--The term `unrecaptured section 1250 
     gain' means the amount of long-term capital gain which would 
     be treated as ordinary income if section 1250(b)(1) included 
     all depreciation and the applicable percentage under section 
     1250(a) were 100 percent.'',
       (2) by striking paragraphs (8), (10), and (11),
       (3) in paragraph (9), by striking ``section 1202 gain, or 
     mid-term gain'' and inserting ``or section 1202 gain'',
       (4) by redesignating paragraph (9) as paragraph (8), and
       (5) by adding at the end the following:
       ``(8) Treatment of pass-thru entities.--
       ``(A) In general.--The Secretary may prescribe such 
     regulations as are appropriate (including regulations 
     requiring reporting) to apply this subsection in the case of 
     sales and exchanges by pass-thru entities and of interests in 
     such entities.
       ``(B) Pass-thru entity defined.--For purposes of 
     subparagraph (A), the term `pass-thru entity' means--
       ``(i) a regulated investment company,
       ``(ii) a real estate investment trust,
       ``(iii) an S corporation,
       ``(iv) a partnership,
       ``(v) an estate or trust, and
       ``(vi) a common trust fund.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
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