[Congressional Record Volume 151, Number 37 (Tuesday, April 5, 2005)]
[Extensions of Remarks]
[Pages E534-E535]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             THE INVESTMENT TAX SIMPLIFICATION ACT OF 2005

                                 ______
                                 

                           HON. DAVID DREIER

                             of california

                    in the house of representatives

                         Tuesday, April 5, 2005

  Mr. DREIER. Mr. Speaker, our position as the world's leading economy 
is founded on the principle of entrepreneurship. This spirit inspires 
us to seek new and innovative products and services which enhance 
Americans' lives by exploring bold business ventures.
  After two failed attempts to start an automobile manufacturing 
company, in 1903, Henry Ford and 11 business associates raised

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$28,000 (nearly $600,000 in today's dollars) to establish the Ford 
Motor Company, ushering in the age of modern transportation. This 
venture not only enhanced the free flow of products and people across 
the nation, but also spawned a revolutionary assembly-line production 
process, increasing manufacturing productivity and lowering prices for 
commercial and consumer goods for the American people. In the process, 
millions of new jobs were created in other new fields, such as part 
manufacturers, service repair technicians, salesmen, and customer 
service representatives.
  Venture capital also played a significant role in the boom of 
entrepreneurship that contributed to the unprecedented economic growth 
of the 1990s. According to the National Venture Capital Association 
(NVCA), venture capitalists raised over $250 billion between 1994 and 
2000 for investment in start-up companies. This frenzied business 
activity helped spur Initial Public Offerings (IPOs) over the same 
period worth over $84 billion, boosting the value of financial markets. 
One major product of this tremendous financing activity was the 
commercialization of the Internet, which continues to have a 
significant impact on the U.S. economy. The Internet allows people to 
connect from all over the world, enhancing the free flow of products, 
services and most importantly, information. This technological 
revolution also created hundreds of thousands of American jobs, such as 
software developers, information technology technicians, salesmen and 
customer service representatives, many of which did not exist before.
  The start-up capital raised by these entrepreneurs made innovations 
such as the automobile and the Internet possible and played a key role 
in transforming the U.S. economic and social landscape. So what's next 
on the horizon? What new industry will revolutionize the U.S. economy?
  If we ever intend to find out, it is imperative that we continue to 
encourage greater investment spending in the economy. In 2003, 
President Bush and the Congress took an important step forward by 
reducing the capital gains tax rate for individuals to 15 percent. 
Since then, the economy has grown at an average a rate of 4.5 percent, 
business investment has increased by $230 billion, financial markets 
are up $2 trillion and over 3 million new jobs have been created. 
However, this rate is scheduled to expire in just four short years.
  Unfortunately, the complex, confusing and temporary capital gains tax 
rates create a lock-in effect, a barrier which discourages investment 
and entrepreneurship, stifling job creation. That is why I am 
introducing the Investment Tax Simplification Act (ITSA) of 2005, which 
would help to knock down this barrier and enhance the free flow of 
investment capital in the economy by establishing a permanent and 
simplified maximum 15 percent capital gains tax for individuals and 
corporations. In addition, the capital gains tax would be eliminated 
for individuals in the 10 and 15 percent tax brackets.
  Entrepreneurial small businesses, the driving force of growth in our 
economy, rely on access to capital to innovate and expand. According to 
the NVCA, there is over $70 billion in venture capital funds sitting on 
the sidelines waiting for investment opportunities. Establishing a 
simplified 15 percent capital gains tax rate for individuals and 
corporations will help get that capital into the economy, turn 
innovative ideas into reality, create new jobs for American workers and 
produce new goods and services for all consumers. The NVCA estimates 
that between 2000 and 2003, venture capital funded companies created 
more than 600,000 new jobs for American workers. Many of these new, 
high paying jobs are in innovative, cutting edge industries, such as 
biomedical and information technologies that rely on private investing 
and financing.
  Enacting a permanent and simplified capital gains tax for individuals 
and corporations would also have an appreciable impact on the Investor 
Class, the more than 50 percent of Americans who own assets dependent 
on financial markets. The ITSA would bolster the investment holdings of 
the Investor Class, helping them pay for their children's education, 
buy their first home or plan for retirement. And eliminating the 
capital gains tax for lower income Americans would provide them with 
greater opportunities to attain financial stability and build wealth.
  In fact, the Congressional Budget Office, in its February 2005 
``Budget Options'' publication, recognizes the importance of making the 
15 percent capital gains tax rate permanent. It states ``Because the 
lower rates expire at the end of 2008, investments made after that time 
will not benefit from them at all, and investments made between 2003 
and 2008 will benefit only partially because some of their returns will 
be earned after 2008. Hence many of the gains in efficiency that would 
result from the effects of the lower rates on the allocation of 
investment will not be realized unless [the rates] are perceived to be 
permanent.''
  Reducing the capital gains tax is also a proven winner at increasing 
revenues to the Federal Treasury. After the 1997 capital gains tax cut 
from 28 percent to 20 percent, increased economic activity resulted in 
an increase in capital gains revenues, from $54 billion in 1996 to $118 
billion in 2000, a gain of nearly 120 percent. And as a result of the 
2003 capital gains tax cut and other tax relief provisions, last year 
the Federal Treasury realized $109 billion in unanticipated revenues.
  Mr. Speaker, I encourage all of my colleagues to support the 
Investment Tax Simplification Act of 2005. Enhancing the free flow of 
capital in the economy will stimulate innovation and entrepreneurship, 
providing enormous benefit for the American people.

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