[Congressional Record Volume 145, Number 114 (Thursday, August 5, 1999)]
[Senate]
[Pages S10426-S10428]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROCKEFELLER (for himself, Mr. Robb, Mr. Sarbanes, Mr. 
        Kerry, Mr. Kennedy, and Mr. Daschle):
  S. 1526. A bill to amend the Internal Revenue Code of 1986 to provide 
a tax credit to taxpayers investing in entities seeking to provide 
capital to create new markets in low-income communities; to the 
Committee on Finance.


                         new markets tax credit

  Mr. ROCKEFELLER. Mr. President, I rise today to introduce a new tool, 
the ``New Markets Tax Credit,'' to be used to expand economic 
development opportunities in low-income communities in West Virginia 
and across this country. I'm very pleased that my good friends, Senator 
Robb, Sarbanes, Kennedy, and Kerry, are joining me in this effort.
  Despite the unprecedented period of expansion of the U.S. economy, 
many urban and rural areas continue to be held back by stubborn 
problems such as high unemployment and underemployment, insufficient 
affordable housing, shortages of services such as day care and shopping 
centers, and perhaps most importantly, by a chronic shortage of the 
private investment capital needed to stimulate and support community 
development.
  For example, in West Virginia, we have counties where the official 
unemployment rate is as high as 14%. Counties like Mingo, McDowell, 
Logan and Boone have seen devastating job losses in the past two 
decades. For these rural communities, the nation's current economic 
boom is a distant echo. It's not that these people do not want to work, 
or that the entrepreneurial spirit is lacking. A major factor is the 
lack of private sector equity investment for business growth.
  I have been pursuing economic development opportunities for my state 
for over 30 years, and perhaps the largest problem I've encountered is 
the lack of venture capital. America's most depressed economic areas 
desperately need private investment. They get very little not only 
because they are unattractive, but also because of misperceptions and 
market failures. A lack of information, for instance, means that many 
companies may have an exaggerated idea of the risk of investing in 
deprived areas, and often have no idea of potential markets. Yes, it is 
true that private venture capital investment rose 24% in 1998, 76% of 
the total went to technology-based companies--primarily in California's 
Silicon Valley and New England's high-tech corridors. But only 5.7% of 
all venture capital in 1998 went to South Central, Southwest and 
Northwest regions combined. Obviously, this is a huge disparity that 
needs to be corrected.
  The New Markets Tax Credit is designed to encourage $6 billion in 
private sector equity investment for business growth in low and 
moderate income rural and urban communities. It would do that by 
providing tax credits for investments of $1.2 billion annually. The 
investments would be made by banks, foundations, companies or 
individuals. These investors would acquire stock or other equity 
interests in selected community economic development entities whose 
primary mission is serving distressed communities. Urban and rural 
communities with high poverty and low median income would be targeted.
  The tax credits would be issued by the U.S. Department of Treasury to 
the selected entities. These entities in turn would sell or syndicate 
the credit to investors. The tax credit ultimately delivered to the 
investor would be in the amount of 6 percent annually of the amount of 
the investment, for an approximate aggregate value to the investor of 
25 percent of the ``present value'' of the original investment over the 
7 years. A ``qualified investment'' by an investor would be a cash 
purchase of stock or other equity in a selected entity, which must be 
held for at least 7 years. Substantially all of the investment would be 
required to be used by the community economic development entity to 
make ``qualified low-income community investments,'' which would be 
equity investments in, or loans to, qualified active businesses in the 
low-income communities.
  The goal of this tax credit will be to encourage private investors 
who may have never considered investing in high-risk areas to do so. By 
investing in the community through local businesses private investors 
can explore new markets and improve the quality of life for the people 
in the area. Community development organizations may use the funds from 
private investors to develop micro-enterprise, manufacturing 
businesses, commercial facilities, communities facilities, like child 
care facilities and senior centers and co-operatives. It has the 
potential to encourage $6 billion in venture capital to these high-risk 
areas. And because community development vehicles may not redeem the 
equity interest for at least seven years, capital stays in the 
community. The New Markets Tax Credit will create new relationships 
between investors, community development vehicles, and small 
businesses, which will foster continued support and lasting investment.
  Mr. President, I believe that the New Markets Tax Credit may be one 
of the most promising and viable new idea for genuine economic 
development in distressed urban and rural communities in recent years. 
President Clinton has highlighted this proposal as part of his FY2000 
budget, and just last month took the case to people across the country, 
those parts of our country which have been too long ignored can 
experience real benefit from this type of initiative. Communities, 
businesses, and investors are responding enthusiastically.
  Hope that is backed up by a strong program of economic investment is 
needed in West Virginia and urban and rural communities throughout 
America. We have all heard the talk in the recent weeks as proponents 
of massive new tax breaks argue that we should send even more money 
back to those who have benefited the most from our historic economic 
expansion. I believe it would be irresponsible for us to create ways to 
provide additional tax relief to those in our society who need the 
least assistance before we make a concerted effort to revitalize the 
parts of our country, and to help the people of our country, who have 
been noticeably left out of the prosperity that went elsewhere. If 
we're going to do more for those who need it least, let us also commit 
to do what we can to propel those most in need of a helping hand into 
the future with real hope of economic success. The New Markets Tax 
Credit is one solid way to do just that.
  I urge my colleagues to examine this proposal carefully and give it 
their full

[[Page S10427]]

support. I ask unanimous consent that a copy of the bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1526

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

     SECTION 1. NEW MARKETS TAX CREDIT.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     business-related credits) is amended by adding at the end the 
     following new section:

     ``SEC. 45D. NEW MARKETS TAX CREDIT.

     ``(a) Allowance of Credit.--
       ``(1) In general.--For purposes of section 38, in the case 
     of a taxpayer who holds a qualified equity investment on a 
     credit allowance date of such investment which occurs during 
     the taxable year, the new markets tax credit determined under 
     this section for such taxable year is an amount equal to 6 
     percent of the amount paid to the qualified community 
     development entity for such investment at its original issue.
       ``(2) Credit allowance date.--The term `credit allowance 
     date' means, with respect to any qualified equity 
     investment--
       ``(A) the date on which such investment is initially made, 
     and
       ``(B) each of the 6 anniversary dates of such date 
     thereafter.
       ``(b) Qualified Equity Investment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified equity investment' 
     means any equity investment in a qualified community 
     development entity if--
       ``(A) such investment is acquired by the taxpayer at its 
     original issue (directly or through an underwriter) solely in 
     exchange for cash,
       ``(B) substantially all of the proceeds from such 
     investment is used by the qualified community development 
     entity to make qualified low-income community investments, 
     and
       ``(C) such investment is designated for purposes of this 
     section by the qualified community development entity.

     Such term shall not include any equity investment issued by a 
     qualified community development entity more than 7 years 
     after the date that such entity receives an allocation under 
     subsection (f). Any allocation not used within such 7-year 
     period may be reallocated by the Secretary under subsection 
     (f).
       ``(2) Limitation.--The maximum amount of equity investments 
     issued by a qualified community development entity which may 
     be designated under paragraph (1)(C) by such entity shall not 
     exceed the portion of the limitation amount allocated under 
     subsection (f) to such entity.
       ``(3) Safe harbor for determining use of cash.--The 
     requirement of paragraph (1)(B) shall be treated as met if at 
     least 85 percent of the aggregate gross assets of the 
     qualified community development entity are invested in 
     qualified low-income community investments.
       ``(4) Treatment of subsequent purchasers.--The term 
     `qualified equity investment' includes any equity investment 
     which would (but for paragraph (1)(A)) be a qualified equity 
     investment in the hands of the taxpayer if such investment 
     was a qualified equity investment in the hands of a prior 
     holder.
       ``(5) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this subsection.
       ``(6) Equity investment.--The term `equity investment' 
     means--
       ``(A) any stock in a qualified community development entity 
     which is a corporation, and
       ``(B) any capital interest in a qualified community 
     development entity which is a partnership.
       ``(c) Qualified Community Development Entity.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified community 
     development entity' means any domestic corporation or 
     partnership if--
       ``(A) the primary mission of the entity is serving, or 
     providing investment capital for, low-income communities or 
     low-income persons,
       ``(B) the entity maintains accountability to residents of 
     low-income communities through representation on governing or 
     advisory boards or otherwise, and
       ``(C) the entity is certified by the Secretary for purposes 
     of this section as being a qualified community development 
     entity.
       ``(2) Special rules for certain organizations.--The 
     requirements of paragraph (1) shall be treated as met by--
       ``(A) any specialized small business investment company (as 
     defined in section 1044(c)(3)), and
       ``(B) any community development financial institution (as 
     defined in section 103 of the Community Development Banking 
     and Financial Institutions Act of 1994 (12 U.S.C. 4702)).
       ``(d) Qualified Low-Income Community Investments.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified low-income community 
     investment' means--
       ``(A) any equity investment in, or loan to, any qualified 
     active low-income community business,
       ``(B) the purchase from another community development 
     entity of any loan made by such entity which is a qualified 
     low-income community investment if the amount received by 
     such other entity from such purchase is used by such other 
     entity to make qualified low-income community investments,
       ``(C) financial counseling and other services specified in 
     regulations prescribed by the Secretary to businesses located 
     in, and residents of, low-income communities, and
       ``(D) any equity investment in, or loan to, any qualified 
     community development entity if substantially all of the 
     investment or loan is used by such entity to make qualified 
     low-income community investments described in subparagraphs 
     (A), (B), and (C).
       ``(2) Qualified active low-income community business.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `qualified active low-income community business' means, with 
     respect to any taxable year, any corporation or partnership 
     if for such year--
       ``(i) at least 50 percent of the total gross income of such 
     entity is derived from the active conduct of a qualified 
     business within any low-income community,
       ``(ii) a substantial portion of the use of the tangible 
     property of such entity (whether owned or leased) is within 
     any low-income community,
       ``(iii) a substantial portion of the services performed for 
     such entity by its employees are performed in any low-income 
     community,
       ``(iv) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to collectibles (as defined in section 
     408(m)(2)) other than collectibles that are held primarily 
     for sale to customers in the ordinary course of such 
     business, and
       ``(v) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to nonqualified financial property (as defined 
     in section 1397B(e)).
       ``(B) Proprietorship.--Such term shall include any business 
     carried on by an individual as a proprietor if such business 
     would meet the requirements of subparagraph (A) were it 
     incorporated.
       ``(C) Portions of business may be qualified active low-
     income community business.--The term `qualified active low-
     income community business' includes any trades or businesses 
     which would qualify as a qualified active low-income 
     community business if such trades or businesses were 
     separately incorporated.
       ``(3) Qualified business.--For purposes of this subsection, 
     the term `qualified business' has the meaning given to such 
     term by section 1397B(d); except that--
       ``(A) in lieu of applying paragraph (2)(B) thereof, the 
     rental to others of real property located in any low-income 
     community shall be treated as a qualified business if there 
     are substantial improvements located on such property,
       ``(B) paragraph (3) thereof shall not apply, and
       ``(C) such term shall not include any business if a 
     significant portion of the equity interests in such business 
     are held by any person who holds a significant portion of the 
     equity investments in the community development entity.
       ``(e) Low-Income Community.--For purposes of this section--
       ``(1) In general.--The term `low-income community' means 
     any population census tract if--
       ``(A) the poverty rate for such tract is at least 20 
     percent, or
       ``(B)(i) in the case of a tract not located within a 
     metropolitan area, the median family income for such tract 
     does not exceed 80 percent of statewide median family income, 
     or
       ``(ii) in the case of a tract located within a metropolitan 
     area, the median family income for such tract does not exceed 
     80 percent of the greater of statewide median family income 
     or the metropolitan area median family income.
       ``(2) Areas not within census tracts.--In the case of an 
     area which is not tracted for population census tracts, the 
     equivalent county divisions (as defined by the Bureau of the 
     Census for purposes of defining poverty areas) shall be used 
     for purposes of determining poverty rates and median family 
     income.
       ``(3) Targeted population.--The Secretary may prescribe 
     regulations under which 1 or more targeted populations 
     (within the meaning of section 3(20) of the Riegle Community 
     Development and Regulatory Improvement Act of 1974 (12 U.S.C. 
     4702(20))) may be treated as low-income communities. Such 
     regulations shall include procedures for identifying the area 
     covered by any such community for purposes of determining 
     entities which are qualified active low-income community 
     businesses with respect to such community.
       ``(f) National Limitation on Amount of Investments 
     Designated.--
       ``(1) In general.--There is a new markets tax credit 
     limitation of $1,200,000,000 for each of calendar years 2000 
     through 2004.
       ``(2) Allocation of limitation.--The limitation under 
     paragraph (1) shall be allocated by the Secretary among 
     qualified community development entities selected by the 
     Secretary. In making allocations under the preceding 
     sentence, the Secretary shall give priority to entities with 
     records of having successfully provided capital or technical 
     assistance to disadvantaged businesses or communities.
       ``(3) Carryover of unused limitation.--If the new markets 
     tax credit limitation for

[[Page S10428]]

     any calendar year exceeds the aggregate amount allocated 
     under paragraph (2) for such year, such limitation for the 
     succeeding calendar year shall be increased by the amount of 
     such excess.
       ``(g) Recapture of Credit in Certain Cases.--
       ``(1) In general.--If, at any time during the 7-year period 
     beginning on the date of the original issue of a qualified 
     equity investment in a qualified community development 
     entity, there is a recapture event with respect to such 
     investment, then the tax imposed by this chapter for the 
     taxable year in which such event occurs shall be increased by 
     the credit recapture amount.
       ``(2) Credit recapture amount.--For purposes of paragraph 
     (1), the credit recapture amount is an amount equal to the 
     sum of--
       ``(A) the aggregate decrease in the credits allowed to the 
     taxpayer under section 38 for all prior taxable years which 
     would have resulted if no credit had been determined under 
     this section with respect to such investment, plus
       ``(B) interest at the overpayment rate established under 
     section 6621 on the amount determined under subparagraph (A) 
     for each prior taxable year for the period beginning on the 
     due date for filing the return for the prior taxable year 
     involved.

     No deduction shall be allowed under this chapter for interest 
     described in subparagraph (B).
       ``(3) Recapture event.--For purposes of paragraph (1), 
     there is a recapture event with respect to an equity 
     investment in a qualified community development entity if--
       ``(A) such entity ceases to be a qualified community 
     development entity,
       ``(B) the proceeds of the investment cease to be used as 
     required of subsection (b)(1)(B), or
       ``(C) such investment is redeemed by such entity.
       ``(4) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (1) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under this chapter or for purposes of section 55.
       ``(h) Basis Reduction.--The basis of any qualified equity 
     investment shall be reduced by the amount of any credit 
     determined under this section with respect to such 
     investment.
       ``(i) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations--
       ``(1) which limit the credit for investments which are 
     directly or indirectly subsidized by other Federal benefits 
     (including the credit under section 42 and the exclusion from 
     gross income under section 103),
       ``(2) which prevent the abuse of the provisions of this 
     section through the use of related parties,
       ``(3) which impose appropriate reporting requirements
       ``(4) which apply the provisions of this section to newly 
     formed entities.''
       (b) Credit Made Part of General Business Credit.--
       (1) In general.--Subsection (b) of section 38 of the 
     Internal Revenue Code of 1986 is amended by striking ``plus'' 
     at the end of paragraph (12), by striking the period at the 
     end of paragraph (13) and inserting ``, plus'', and by adding 
     at the end the following new paragraph:
       ``(14) the new markets tax credit determined under section 
     45D(a).''
       (2) Limitation on carryback.--Subsection (d) of section 39 
     of such Code is amended by adding at the end the following 
     new paragraph:
       ``(10) No carryback of new markets tax credit before 
     january 1, 2000.--No portion of the unused business credit 
     for any taxable year which is attributable to the credit 
     under section 45D may be carried back to a taxable year 
     ending before January 1, 2000.''
       (c) Deduction for Unused Credit.--Subsection (c) of section 
     196 of the Internal Revenue Code of 1986 is amended by 
     striking ``and'' at the end of paragraph (7), by striking the 
     period at the end of paragraph (8) and inserting ``, and'', 
     and by adding at the end the following new paragraph:
       ``(9) the new markets tax credit determined under section 
     45D(a).''
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 is amended by adding at the end the 
     following new item:

``Sec. 45D. New markets tax credit.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to investments made after December 31, 1999.

  Mr. ROBB. Mr. President, I am pleased to join my colleague, Senator 
Rockefeller, in introducing the New Markets Tax Credit Act, innovative 
legislation that will benefit both rural and urban America.
  As its name suggests, the New Markets bill is designed to create new 
markets within our nation for investment, for job growth, and for 
renewal. While most of the nation experiences record economic growth, 
there are some places that have been left behind. Too many communities 
in both rural and urban America haven't been able to share the wealth, 
and without willing investors, that wealth may never come. Capitalism 
cannot flourish where there is no capital. This legislation we're 
introducing today addresses the need for investment in all our 
communities, and I believe the tax credits contained in this bill 
provide a way for America to lift as it climbs.
  Under this bill, tax credits would be allocated to Community 
Development Entities located within the neighborhoods and rural areas 
where help is needed. Those who invest in these Community Development 
organizations would receive tax benefits, and the funds they invested 
would be used by the organizations to invest in local businesses, 
provide start-up capital, or make low interest loans. The investment 
decisions would be made at the local level by those who best know the 
community, would attract private enterprise to create economic growth, 
and would use federal tax credits to achieve these objectives. This 
local, federal, and private sector partnership holds the key to 
improving communities across this nation.
  The New Markets Initiative can use both the business incubator and 
community action models that have proven so successful in many 
communities. An example of such success can be found at People, 
Incorporated in Southwest Virginia, a community action agency that 
promotes economic growth by leveraging funds and lending expertise to 
new or expanding businesses.
  This legislation, along with the Enterprise Zone bill I recently 
introduced, gives lcoal communities the tools they need to spur 
economic growth where they live. Attracting investments to the neediest 
communities will pay dividends, not just in economic terms, but in 
quality of life terms as well. Prospering communities can provide 
quality education, improved transportation and better police 
protection. And improving communities can provide a draw for those who 
would otherwise be tempted to move out to the suburbs, thereby reducing 
the pressures that have created suburban sprawl and increasing commutes 
and diminishing open spaces.
  Mr. President, I hope we can move this legislation quickly.
                                 ______