[Congressional Record Volume 157, Number 143 (Friday, September 23, 2011)]
[Extensions of Remarks]
[Page E1714]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          INTRODUCING THE INVESTING INCOME AT HOME ACT OF 2011

                                 ______
                                 

                            HON. RICK LARSEN

                             of washington

                    in the house of representatives

                       Friday, September 23, 2011

  Mr. LARSEN of Washington. Mr. Speaker, today I am pleased to 
introduce the Investing Income at Home Act of 2011, legislation that 
simplifies the outdated personal holding company (``PHC'') tax regime 
and will help certain closely held companies invest money here at home 
to create jobs and help our economy recover.
  Enacted in 1934, the PHC tax provisions (sections 541-547 of the 
Internal Revenue Code) are outdated. The goal of the PHC tax when it 
was originally enacted was to prevent wealthy individuals from avoiding 
the individual income tax on passive income like interest, dividends 
and rents by forming corporations to hold these investments.
  In the 1930s the corporate tax rate was 13.5 percent and the top 
individual income tax rate was 63 percent. This 49.5 percent 
differential between the top corporate and individual tax rate--coupled 
with the ability to liquidate and distribute appreciated corporate 
assets without tax consequences--provided an incentive for wealthy 
individuals to incorporate their portfolio investments. Those 
incentives have largely vanished under current law. First, the top 
marginal tax rate for both individuals and corporations is 35%. Second, 
corporate liquidating distributions of appreciated assets are taxed at 
the corporate level. Current law provides no incentive to incorporate 
portfolio investments to escape the individual income tax. The PHC tax 
is an obsolete tax that should be repealed.
  Section 541 of the Internal Revenue Code imposes a corporate level 
penalty tax of 15% on the undistributed personal holding company income 
of a PHC. Under current law, this rate is scheduled to return to the 
highest individual tax rate of 39.6% when the lower dividend tax rate 
expires in 2011. A corporation constitutes a PHC if 60% of its adjusted 
gross income is PHC income and if 50% of its stock is owned by five or 
fewer individual shareholders at any time during the last half of the 
taxable year. PHC income generally is defined as interest, dividends, 
royalties, rents, and certain other types of passive investment income.
  Furthermore, in the case of a group of corporations filing a 
consolidated return, the PHC test is generally conducted on the basis 
of the operations of the consolidated group. However, in certain 
circumstances the test must be conducted on a separate company basis. 
When the test is conducted on a separate company basis, a group of 
corporations filing a consolidated return can easily find that it has a 
personal holding company tax liability even though a great majority of 
its revenue is generated from the active conduct of its trade or 
businesses. The requirement to conduct the PHC tests on a separate 
company basis often unfairly penalizes corporate groups that are 
actively engaged in business. A common fact pattern that gives rise to 
this unwarranted imposition of the PHC tax is where a member of the 
group receives dividends from controlled foreign subsidiaries. In this 
case, the separate company PHC tax computation serves as a deterrent to 
the repatriation and reinvestment of foreign earnings in the United 
States.
  The legislation I am introducing would exclude dividends received 
from a firm's foreign affiliates and reinvested in the United States 
from the definition of personal holding company income.
  This bill will provide that corporations impacted by the PHC that 
benefit from the provision would pay the same level of corporate tax as 
similarly situated publicly traded corporations. This would free them 
to invest dividends from foreign affiliates into the U.S. economy, 
helping to create much-needed jobs here in America.
  I ask my colleagues to join me in supporting this important 
legislation that will clean up an outdated part of the Tax Code and 
help to create good jobs in the United States.

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