[Congressional Record Volume 148, Number 150 (Tuesday, November 19, 2002)]
[Senate]
[Pages S11575-S11576]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KYL:
  S. 3. A bill to repeal the sunset of the provisions of the Economic 
Growth and Tax Relief Reconciliation Act of 2001, and for other 
purposes; to the Committee on Finance.
  Mr. KYL. Mr. President, Investors are the backbone of the U.S. 
economic system. They provide the capital that entrepreneurs use to 
start and grow businesses. Investors invest in everything from 
corporations like General Electric to the local Mom and Pop convenience 
store. These are the businesses that employ our American workers and 
compete against other businesses throughout the United States and the 
world. It is investor capital that fuels the most dynamic workings of 
our economy.
  Too often, our Federal Government has taken the American investor for 
granted. Even worse, our Federal Government has singled him out for 
adverse treatment by placing significant impediments in his path.
  Congress needs to refocus our government's attention on helping our 
investors as well as making our U.S. businesses more attractive 
entities in which to invest.
  Today, I am introducing legislation, the ``Contract with Investors,'' 
which incorporates a number of proposals to foster a better investment 
environment.
  In order to satisfy an arcane Senate budget rule, the 2001 tax-relief 
law's provisions will expire in 2011. Making this bipartisan tax relief 
permanent will eliminate a large source of investor uncertainty that 
currently exists in the marketplace. Businesses are having a hard time 
planning with the Tax Code potentially reverting back to old tax laws. 
Businesses, and the investors who own them, need certainty and a stable 
environment in which to prosper. Making last year's tax provisions 
permanent will go a long way towards providing that certainty.
  The second thing my bill does is accelerate last year's marginal 
income tax rate reductions. Instead of reducing the tax brackets in 
2004 and 2006, as currently scheduled, my bill will move the 2004 rate 
reductions up to 2003 and the 2006 rate reductions up to 2004. Marginal 
tax-rate reductions benefit all income tax-paying Americans. Many 
investors invest in businesses that are sole proprietorships, i.e. non-
incorporated business entities. Owners of these businesses pay the 
highest individual marginal income tax rate; under my bill the highest 
rate they would pay in 2004 and beyond would be 35 percent, the same 
rate as corporations.
  The third provision would accelerate the repeal of the estate, or 
more accurately ``death'', tax. A December 1998 report by the Joint 
Economic Committee concluded that the existence of the death tax during 
the last century has reduced the stock of investors' capital in the 
economy by nearly half a

[[Page S11576]]

trillion dollars. The Joint Committee estimates that, by repealing the 
death tax and putting those resources to better use, as many as 240,000 
jobs could be created over seven years, and Americans would have an 
additional $24.4 billion in disposable personal income.
  Last year, Dr. Wilbur Steger, President of Consad Research 
Corporation and a professor at Carnegie Mellon University testified 
before the Senate Finance Committee that an immediate death-tax repeal 
would provide a $40 billion automatic stimulus to the economy. This is 
based on estimates of the amount of net unrealized capital gains that 
would be unlocked by such a repeal. Many Americans choose to hold onto 
their assets until death in order to obtain for their heirs a ``step-
up'' in basis. Eliminating the death tax and a limited step-up in basis 
will provide an incentive for Americans to sell assets before death, 
hence the term ``unlocking.''
  Under current law, the death tax will go down to zero in 2010 but 
reappear thereafter, at potent 2001 levels, thus adding significant 
complexity to future death-tax planning, increasing costs that are a 
drag on productivity, and retreating from a principled rejection of a 
frankly immoral tax. This is unsatisfactory. Until the death tax is 
repealed, family businesses, farms and ranches must still pay for 
expensive life-insurance policies, death-tax planners, and tax 
attorneys. These expenses total more than $12 billion a year, according 
to Consad Research Corporation. A more efficient utilization of these 
resources would result in an immediate stimulus for the economy. More 
workers will be hired, more capital assets purchased and more 
productive goods made if we accelerate the elimination of the death tax 
and make it permanent. In short, Congress should hurry up and bury the 
death tax for all time to enable family businesses, farms, and ranches 
to begin investing those billions of wasted resources in the economy, 
creating jobs and expanding services, providing a powerful stimulus for 
their long-term survival. My bill would permanently repeal the death 
tax in 2005, thus allowing all Americans 2 years to plan for a future 
in which the federal government no longer taxes the death of its 
citizens.
  The fourth provision in my Contract with Investors addresses the 
taxation of capital gains. My bill would reduce it to 10 percent. The 
capital-gains tax is a form of double-taxation that penalizes risk-
taking and entrepreneurship. As many economists, including Federal 
Reserve Chairman Alan Greenspan, note, the capital-gains tax should not 
exist. Short of eliminating this tax, Congress must enact a large, and 
permanent, reduction in the capital-gains tax rate in order to 
stimulate new investment and more productive use of resources for both 
the short-term and the long-term health of our economy.
  According to a recent study by the American Council for Capital 
Formation, American taxpayers face capital-gain tax rates that are 35 
percent higher than those paid by the average investor in other 
countries. In addition, the United States is one of a small number of 
countries that requires a holding period for an investment to qualify 
for a lower capital-gain treatment.
  In the last decade, individual capital-gains rate reductions and 
shortening of the holding period has boosted U.S. economic growth. 
Reducing the cost of capital will promote the promote the type of 
productive business investment that fosters growth in output and high-
paying jobs. Lowering rates will aid entrepreneurs in their effort to 
promote technological advances in products and services that people 
want and need.
  And let's not forget about our national savings. Reducing capital-
gains taxes means fewer taxes on Americans who choose to save for their 
future. What our economy needs is to remove impediments for savings and 
capital formation. When Americans choose to save for their retirement 
security and other financial goals, they are investing in the United 
States. We need to make that choice more attractive so that Americans 
choose to invest more in the United States. Reducing the capital-gains 
taxes will help achieve this goal.
  My bill will also modernize the capital-loss provisions by increasing 
the amount of capital loss an individual may deduct against ordinary 
income to $10,000 from the current-law $3,000, and indexing it for 
future inflation. This $3,000 limit was arbitrarily set over 25 years 
ago and would have grown to $10,000 had it been indexed when it was 
enacted. Due to this lack of indexation, many investors are forced to 
hold on to unproductive investments. Updating this $3,000 limit will 
permit investors to sell these unproductive assets and invest the 
proceeds in more productive assets.
  Next, my bill will provide additional incentives for Americans to 
increase the amounts and periods of time in which they invest for their 
retirement security. Increasing the annual, maximum IRA contribution 
from $3,000 to $5,000 and the annual, maximum 401(k) plan contribution 
from $11,000 to $15,000 would enable American workers to save more for 
their future by investing in businesses. Increasing from 70.5 to 75 the 
age at which those tax-deferred retirement-savings accounts must begin 
making minimum required annual withdrawals will allow American seniors 
who are approaching this arbitrary age to choose whether to maintain 
their investments. They will not longer be forced to divest.

  The next provision in my bill would eliminate the double taxation of 
corporate profits. Currently, businesses pay income taxes on their 
profits. Their investors are forced to pay a second income tax on the 
amounts that corporations distribute to them in the form of dividends. 
The national Center for Policy Analysis has calculated that the 
combined tax rate on corporate profits is approximately 60 percent.
  My bill would remedy this problem by exempting from income tax the 
dividends received by individuals from publicly traded C corporations. 
Eliminating this taxation will produce higher returns on dividend-
yielding equity investments. Companies will have an incentive to make 
money and give it to the investor/shareholders in order to increase the 
value of the stock. Investors and businesses will benefit from this 
proposal.
  Finally, I have included five provisions under Sense of the Senate 
language. I believe that the Senate must act on these issues and I 
stand ready and willing to assist my fellow Senators in solving these 
problems.
  First, Congress should pass legislation to safeguard American 
workers' pension and retirement accounts. This year, the Finance 
Committee unanimously passed out of committee such a bill. The Senate 
and the House of Representatives should act quickly to pass similar 
legislation as soon as possible.
  Second, Congress should modernize this country's international tax 
provisions in order to permit U.S. companies to better compete 
internationally. Our Tax Code's provisions, particularly the 
international tax, are placing our U.S. companies and the investors who 
own them at a distinct competitive disadvantage. Congress must 
modernize these provisions and move towards ending the current practice 
of taxing profits earned outside our country's boundaries.
  Third, Congress must take the trouble to purge redundant, outdated, 
and unscientific regulatory burdens on investors and U.S. companies. 
Congress is quick to pass onerous new laws but slow to repeal them. 
This is an abdication of our responsibilities as legislators. Before 
placing new burdens on investors and businesses, Congress should be 
required to perform a cost-benefit analysis as well as instituting 
performance criteria to monitor and evaluate these new burdens on U.S. 
businesses and investors.
  Fourth, Congress should enact meaningful tort reform as soon as 
possible.
  Finally, Congress should enact meaningful tax reform that simplifies 
the Federal Tax Code and reduces the cost-recovery periods that 
businesses are forced to use to recover the costs of capital.
  Now is the time for bold action. A ``Contract with Investors'' is 
long overdue. I have laid out my principles. I look forward to future 
hearings and discussions with my colleagues. It's time to get working.
                                 ______