[Congressional Record Volume 147, Number 20 (Tuesday, February 13, 2001)]
[Senate]
[Page S1271]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SHELBY:
  S. 302. A bill to amend the Internal Revenue Code of 1986 to reduce 
the maximum capital gain tax rate for gains from property held for more 
than 5 or 10 years; to the Committee on Finance.
  Mr. SHELBY. Mr. President, I rise today to introduce legislation that 
would reduce the capital gains tax for properties held for more than 
five or ten years. Such legislation is needed to help increase 
investment and to decrease inefficient economic behavior.
  Under current law, people holding capital property are often 
discouraged from selling their property because of the large 
anticipated tax liability. Such a ``lock-in'' of assets is economically 
undesirable. Economists have estimated that perhaps as much as 7.5 
trillion dollars are ``locked-in'' the portfolios of American 
taxpayers. By reducing the tax on certain long term capital gains, we 
would decrease the ``lock-in'' effect and allow investors to liquidate 
or hold capital assets based on market factors rather than the tax 
code.
  Opponents to lower taxation of capital gains argue that reducing 
capital gains tax rates would result in a revenue shortfall. Such an 
argument fails to recognize the effect that reduced taxes will have on 
investment behavior. By lowering taxes on capital gains, we will 
encourage, rather than discourage, capital investment. I believe the 
resulting situation would be a rise in the number of investment 
transactions and in the amount of gain realized in each taxable year 
which will in turn lead to an increase in tax revenue. This trend has 
been well-documented as evidenced by the fact that every capital gains 
tax reduction in the last forty years has resulted in increased federal 
revenue. In addition to increasing federal revenue, a cut in the 
capital gain tax rates would benefit individual states, as a vast 
majority of them also tax capital gains.
  The current capital gains tax dissuades investment and economic 
growth. By lowering the capital gains tax rates, my bill would help 
lower the cost of capital and spur economic growth. I urge my 
colleagues to join me in support of the bill. I ask unanimous consent 
that the text 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. 302

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

     SECTION 1. REDUCTION IN MAXIMUM CAPITAL GAIN RATES FOR 5-YEAR 
                   AND 10-YEAR GAINS.

       (a) In General.--Paragraph (2) of section 1(h) of the 
     Internal Revenue Code of 1986 (relating to maximum capital 
     gains rate) is amended to read as follows:
       ``(2) Reduced capital gain rates for qualified 5-year and 
     10-year gain.--
       ``(A) Reduction in 10-percent rate.--In the case of any 
     taxable year beginning after December 31, 2001, the rate 
     under paragraph (1)(B) shall be--
       ``(i) 8 percent with respect to so much of the amount to 
     which the 10-percent rate would otherwise apply as does not 
     exceed qualified 5-year gain,
       ``(ii) 5 percent with respect to so much of the amount to 
     which the 10-percent rate would otherwise apply as does not 
     exceed qualified 10-year gain, and
       ``(iii) 10 percent with respect to the remainder of such 
     amount.
       ``(B) Reduction in 20-percent rate.--The rate under 
     paragraph (1)(C) shall be--
       ``(i) 10 percent with respect to so much of the amount to 
     which the 20-percent rate would otherwise apply as does not 
     exceed the lesser of--

       ``(I) the excess of qualified 5-year gain over the amount 
     of such gain taken into account under subparagraph (A) of 
     this paragraph, or
       ``(II) the amount of qualified 5-year gain (determined by 
     taking into account only property the holding period for 
     which begins after December 31, 2001),

       ``(ii) 5 percent with respect to so much of the amount to 
     which the 20-percent rate would otherwise apply as does not 
     exceed the lesser of--

       ``(I) the excess of qualified 10-year gain over the amount 
     of such gain taken into account under subparagraph (A) of 
     this paragraph, or
       ``(II) the amount of qualified 10-year gain (determined by 
     taking into account only property the holding period for 
     which begins after December 31, 2001), and

       ``(iii) 20 percent with respect to the remainder of such 
     amount.
     For purposes of determining under the preceding sentence 
     whether the holding period of property begins after December 
     31, 2001, the holding period of property acquired pursuant to 
     the exercise of an option (or other right or obligation to 
     acquire property) shall include the period such option (or 
     other right or obligation) was held.''.
       (b) Qualified 5-year and 10-year Gain.--Paragraph (9) of 
     section 1(h) of the Internal Revenue Code of 1986 is amended 
     to read as follows:
       ``(9) Qualified 5-year and 10-year gain.--For purposes of 
     this subsection--
       ``(A) Qualified 5-year gain.--The term `qualified 5-year 
     gain' means the aggregate long-term capital gain from 
     property held for more than 5 years but not more than 10 
     years.
       ``(B) Qualified 10-year gain.--The term `qualified 10-year 
     gain' means the aggregate long-term capital gain from 
     property held for more than 10 years.
       ``(C) Determination of gain.--The determination under 
     subparagraph (A) or (B) shall be made without regard to 
     collectibles gain, gain described in paragraph (7)(A)(i), and 
     section 1202 gain.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
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