[Congressional Record Volume 144, Number 40 (Wednesday, April 1, 1998)]
[House]
[Pages H2039-H2040]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    INTRODUCTION OF THE CAPITAL GAINS TAX SIMPLIFICATION ACT OF 1998

  Mr. COYNE. Mr. Speaker, I rise today to introduce the ``Capital Gains 
Tax Simplification Act of 1998.'' This legislation would simplify the 
computation of capital gains taxes for all individual taxpayers. The 
bill would also provide modest capital gains tax reductions for 
millions of Americans.
  I am sure that many of you have received complaints from a number of 
your constituents about the overly complex capital gains form--Schedule 
D--that they have to fill out as part of their 1997 Federal income tax 
returns. Their complaints are justified. Schedule D is long and 
complex--and it is very easy to make a mistake in filling out this 
form. Moreover, if nothing is done to fix this problem, Schedule D will 
get even more complex and burdensome in the coming years. The Capital 
Gains Tax Simplification Act of 1998 would solve the capital gains 
complexity problem once and for all.
  The capital gains treatment provided in the Capital Gains Tax 
Simplification Act of 1998 is so simple that the substance of the bill 
can be stated in one short, easily understandable sentence: ``If for 
any taxable year a taxpayer other than a corporation has a net capital 
gain, 40 percent of such gain shall be a deduction from gross income.'' 
In contrast, the Technical Corrections Act that passed the House last 
year contained 12 pages of detailed statutory language to describe the 
current complicated scheme for taxation of capital gains.
  The time is long overdue for Congress to begin simplifying our tax 
laws. The capital gains provisions are a good place to start. The 
current capital gains schedule and the underlying rules for taxation of 
capital gains are unnecessarily complex. Regardless of one's views 
about capital gains taxes, I think that most of us would agree that a 
revenue-neutral simplification of the capital gains tax provisions is 
much-needed.
  Current law imposes a significant burden on taxpayers who have 
capital gains. The IRS estimates that a typical taxpayer with a capital 
gain will spend 5 hours and 20 minutes filling out his or her capital 
gains tax form. This is two hours more than in 1994. Moreover, the 
chances of making an effort in filing out this complicated, 54-line 
form are fairly high.
  As a member of the National Commission on Restructuring the Internal 
Revenue Service, I supported the Commission's recommendation to pursue 
simplification at every possible opportunity. As the Ranking Member on 
the Ways and Means Oversight Subcommittee, I am well aware of the need 
for tax simplification. We need to make the tax code less complex--and 
less burdensome--for the American taxpayer. The Capital Gains Tax 
Simplification Act of 1998 would go a long way toward meeting that 
goal.
  This bill embodies simplification in the clearest and strongest sense 
of the word. The bill would replace a lengthy, complex provision with a 
simple, equitable solution. It would shorten and simplify the tax code, 
and--more importantly--it would shorten and simplify the process that 
millions of taxpayers must go through when filing out their annual 
income tax returns.
  Now is the time to act, not next year or the next. Last year, in the 
House-passed IRS restructuring bill (H.R. 2676), the House and the Ways 
and Means Committee supported the IRS Restructuring Commission's view 
that the tax laws should be simplified wherever, and however, possible. 
My bill would do exactly that.
  The IRS restructuring bill would also mandate that, for tax 
legislation considered by the tax-writing committees after January 1, 
1998, a ``tax complexity analysis'' be provided by the Joint Committee 
on Taxation to ensure that tax provisions brought before the Congress 
enhance simplification and eliminate complexity. Had this ``tax 
complexity analysis'' law been in effect during consideration of the 
1997 Taxpayer Relief Act, the capital gains provisions in that bill 
would have failed the test miserably. I believe that, in contrast, a 
``tax complexity analysis'' of my bill would be extraordinarily 
positive. How could it be otherwise, when my bill would eliminate the 
requirement to fill out Schedule D for most capital gains recipients 
and replace it with a single line on the 1040 form?
  What happened to make the current-law calculation of capital gains 
taxes so complex? The answer is simple. The 1997 taxpayer Relief Act 
created a confusing array of capital gains tax rates. As a result, the 
law provides for five different rates that can apply to the capital 
gains of an individual--10 percent, 15 percent, 20 percent, 25 percent, 
and 28 percent. I have attached a copy of the new 1997 capital gains 
tax computation schedule--Schedule D--to my statement to demonstrate 
the capital gains tax provisions' extraordinary complexity.
  An additional tax rate category is scheduled to take effect in the 
year 2001, and another tax rate category will take effect in 2006. The 
forms required to accommodate these additional rate categories will add 
significant additional complexity to the filing process for millions of 
taxpayers. After those provisions take effect, the 1997 Schedule D will 
look simple in comparison. Moreover, under current law, a growing 
number of taxpayers will have to fill out the capital gains form twice 
in the coming years--once for the regular tax, and once for the 
alternative minimum tax. If you think tax filers are angry and 
frustrated now, just wait a few years.
  The worst aspect of current law is that its complexity falls hardest 
on low- and moderate-income taxpayers whose only capital investments 
are in mutual funds. They aren't wealthy people; they don't have their 
own accountants. They are the people who usually fill out their tax 
returns themselves. And they have to fill out that confusing, error-
prone Schedule D themselves. Under the bill I am introducing today, 
those taxpayers would not have to fill out a separate capital gains tax 
form at all. They would simply include 60 percent of their total 
capital gains distributions on the appropriate line of their tax 
returns. Taxpayers with other sources of capital gains would still have 
to report these gains on Schedule D or its equivalent, but even they 
would no longer have to complete the roughly 35 lines of calculations 
on page 2 of Schedule D to figure out their taxes; they would simply 
figure out their net capital gains using Schedule D and then include 60 
percent of that amount on the appropriate line of their tax return.

  It has been said in recent days that much of the complexity 
associated with the capital gains tax could be eliminated by 
eliminating the new 18-month holding period requirement. This is just 
not true. Simply repealing the 18-month holding period requirement 
would not eliminate any part of the current complex capital gains 
schedule. The only way to get true simplification of the capital gains 
provisions enacted last year is to enact a simplification proposal like 
the one in my bill--that is, to provide a one-year holding period 
requirement for all capital assets, and to permit depreciation 
recapture gains on real estate to receive the full benefit of the 
capital gains tax reduction.
  It is my understanding that the bill would be revenue neutral. The 
bill's simple 40-percent exclusion for capital gains can be substituted 
for the confusing array of capital gains tax rates under current law at 
no cost to the Federal Government. As I mentioned earlier, simplifying 
the computation of capital gains taxes for all individual taxpayers 
along these lines would also provide modest capital gains tax 
reductions for nearly all individuals with capital gains income. I have 
attached a chart which shows the impact of my legislation on the 
capital gains tax rates that individuals would pay. Most capital gains 
filers--over 11 million

[[Page H2040]]

households--would see their capital gains rates drop by several 
percentage points. The bill is expected to impose modest capital gains 
tax increases on some of the 1\1/2\ million wealthiest taxpayers in the 
country--those households with incomes of more than $200,000 per year--
but it is my understanding that even many of these taxpayers would 
receive modest tax reductions under this bill. This is not a big price 
to pay for eliminating some of the extraordinary complexity from the 
tax code.
  Many of my Democratic colleagues on the Ways and Means Committee--
including Representatives Rangel, Stark, Matsui, Kennelly, McDermott, 
Lewis, Neal, and Becerra--are original cosponsors of this legislation. 
I urge my other colleagues to join me in cosponsoring this capital 
gains simplification bill.

                                CHANGES IN CAPITAL GAINS TAX RATES UNDER THE CAPITAL GAIN TAX SIMPLIFICATION ACT OF 1998
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Rate under current law                                Rate under proposed
                                                 ------------------------------------------------------------------------------        legislation
                                                  Assets held more than 18                                                     -------------------------
  Rate bracket (Number of taxpayers in bracket)        months and not       Real estate depreciation   Collectibles and assets
                                                       collectibles or           recapture gain        held at least 12 months   All capital assets held
                                                       recapture gain                                  but less than 18 months     more than 12 months
--------------------------------------------------------------------------------------------------------------------------------------------------------
15 percent (61.58 million)......................                       10                        15                        15                       9.0
28 percent (24.0 million).......................                       20                        25                        28                      16.8
31 percent (2.3 million)........................                       20                        25                        28                      18.6
36 percent (1.0 million)........................                       20                        25                        28                      21.6
39.6 percent (0.5 million)......................                       20                        25                        28                      23.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
More than 100 million individual tax returns are filed each year.
Of those 100 million returns, 14 million include capital gains income.
Under this legislation: approximately 11.3 million of those individual filers with capital gains would get a tax reduction, approximately 2 million
  would see essentially no change in their taxes, and approximately 700,000 of those filers--filers with incomes over $200,000--would see modest
  increases.

  

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