[House Report 107-734]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-734

======================================================================



 
   INCREASE IN LIMITATION ON CAPITAL LOSSES APPLICABLE TO INDIVIDUALS

                                _______
                                

   October 10 (legislative day, October 9), 2002.--Committed to the 
 Committee of the Whole House on the State of the Union and ordered to 
                               be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1619]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1619) to amend the Internal Revenue Code of 1986 to 
increase the limitation on capital losses applicable to 
individuals, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
Contents.........................................................     1
  I. Summary and Background...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     2
          C. Legislative History.................................     2
 II. Explanation of the Bill..........................................2
III. Votes of the Committee...........................................3
 IV. Budget Effects of the Bill.......................................4
          A. Committee Estimate of Budgetary Effects.............     4
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     6
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     6
  V. Other Matters To Be Discussed Under the Rules of the House.......8
          A. Committee Oversight Findings and Recommendations....     8
          B. Statement of General Performance Goals and 
              Objectives.........................................     8
          C. Constitutional Authority Statement..................     8
          D. Information Relating to Unfunded Mandates...........     8
          E. Applicability of House Rule XXI 5(b)................     8
          F. Tax Complexity Analysis.............................     9
 VI. Changes in Existing Law Made by the Bill, as Reported............9
VII. Dissenting Views.................................................9
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. INCREASE IN LIMITATION ON CAPITAL LOSSES APPLICABLE TO 
                    INDIVIDUALS.

  (a) In General.--Paragraph (1) of section 1211(b) of the Internal 
Revenue Code of 1986 (relating to limitation on capital losses for 
taxpayers other than corporations) is amended by striking ``$3,000 
($1,500'' and inserting ``$8,250 (1/2 such amount''.
  (b) Adjustment for Inflation.--Section 1211 of such Code (relating to 
limitation on capital losses) is amended by adding at the end the 
following new subsection:
  ``(c) Adjustment for Inflation.--
          ``(1) In general.--In the case of any taxable year beginning 
        in a calendar year after 2002, the $8,250 amount contained in 
        subsection (b)(1) shall each be increased by an amount equal 
        to--
                  ``(A) such amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for the calendar year in which the 
                taxable year begins by substituting `calendar year 
                2001' for `calendar year 1992' in subparagraph (B) 
                thereof.
          ``(2) Rounding.--If any increase determined under paragraph 
        (1) is not a multiple of $50, such increase shall be rounded to 
        the next highest multiple of $50.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2001.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1619, as amended, increases the limitation 
on capital losses applicable to individuals.
    The bill provides net tax reductions of over $9.871 billion 
over fiscal years 2003-2007.

                 B. Background and Need for Legislation

    The provision approved by the Committee reflects the need 
to increase the limitation on capital losses applicable to 
individuals.

                         C. Legislative History


                            COMMITTEE ACTION

    The Committee on Ways and Means marked up the provisions of 
the bill on October 7 and 8, 2002, and reported the provisions, 
as amended, on October 8, 2002, by a rollcall vote of 24 yeas 
and 11 nays (with a quorum being present).

                      II. EXPLANATION OF THE BILL


   INCREASE IN LIMITATION ON CAPITAL LOSSES APPLICABLE TO INDIVIDUALS

Present law

    Capital losses of individuals are deductible in full 
against capital gains. In addition, individual taxpayers may 
deduct capital losses against up to $3,000 ($1,500 in the case 
of a married individual filing a separate return) of ordinary 
income in each taxable year. Any remaining unused capital 
losses may be carried forward indefinitely to future taxable 
years.

Reasons for change

    The Committee believes that the $3,000 limitation on the 
deduction of capital losses against ordinary income, which has 
been in the law since 1978, is too restrictive. There has been 
significant inflation since that limit was enacted, and 
taxpayers who have capital losses that are not offset by 
capital gains should be able to deduct a greater amount against 
ordinary income.

Explanation of provision

    The maximum amount of capital losses that individual 
taxpayers may offset against ordinary income is increased to 
$8,250 ($4,125 in the case of a married individual filing a 
separate return).
    These amounts are indexed for inflation, rounded to the 
next highest multiple of $50 ($25 in the case of a married 
individual filing a separate return).

Effective date

    The provision applies to taxable years beginning after 
December 31, 2001.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 1619.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 1619, as amended, was ordered favorably 
reported by a rollcall vote of 24 yeas to 11 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........  ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........  .................  ........  ........  .........
Mr. Hulshof....................        X   ........  .........  .................  ........  ........  .........
Mr. McInnis....................        X   ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. Foley......................        X   ........  .........  .................  ........  ........  .........
Mr. Brady......................        X   ........  .........  .................  ........  ........  .........
Mr. Ryan.......................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    A substitute amendment by Mr. Pomeroy, was defeated by a 
rollcall vote of 8 yeas to 27 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....  ........  ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......  ........        X   .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 1619 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2007:

           ESTIMATED REVENUE EFFECTS OF A CHAIRMAN'S AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 1619, SCHEDULED FOR MARKUP BY THE COMMITTEE ON WAYS AND MEANS ON OCTOBER 7, 2002
                                                                          [Fiscal years 2003-2012, millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
               Provision                      Effective         2003       2004       2005       2006       2007       2008       2009       2010       2011       2012     2003-07     2003-12
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase the Limit on the Deduction for      tyba 12/31/01      -2,142     -1,748     -1,849     -2,007     -2,125     -2,343     -2,525     -2,753     -2,997     -3,432     -9,871     -23,921
 Net Capital Losses to $8,250 ($4,125
 in the Case of a Married Individual
 Filing a Separate Return); Index for
 Inflation Occurring After 2002 \1\....
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The inflation adjustments are rounded to the next highest multiple of $50 ($25 in the case of a married individual filing a separate return).

Legend for ``Effective'' column: tyba = taxable years beginning after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provision involves increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 9, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1619, a bill to 
increase the limitation on capital losses applicable to 
individuals.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Annie 
Bartsch.
            Sincerely,
                                         Barry B. Anderson,
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 1619--A bill to increase the limitation on capital losses 
        applicable to individuals

    Summary: H.R. 1619 would amend the Internal Revenue Code of 
1986 to increase the maximum allowable deduction for net 
capital losses for individuals, effective for tax years after 
2001. Taxpayers would be able to deduct net capital losses up 
to $8,250 ($4,125 for married taxpayers filing separately) in 
tax year 2002. Thereafter, the limit would be indexed for 
inflation and rounded to the next highest multiple of $50. 
Under current law, the limit is $3,000 ($1,500 for married 
taxpayers filing separately) and is not indexed for inflation.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 1619 would reduce revenues by $2.1 billion in 
2003 and by $23.9 billion over the 2003-2012 period. JCT has 
determined that the bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would not affect the budgets of state, 
local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1619 is shown in the following table. 
All revenue 1619 were provided by JCT.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                               2003       2004       2005       2006       2007       2008       2009       2010       2011       2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues........................     -2,142     -1,748     -1,849     -2,007     -2,125     -2,343     -2,525     -2,753     -2,997     -3,432
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.

    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains no intergovernmental or 
private-sector mandates as defined in UMRA and would not affect 
the budgets of state, local, or tribal governments.
    Estimate prepared by: Annie Bartsch.
    Estimate approved by: Roberton Williams, Deputy Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers that the Committee concluded that it is appropriate 
and timely to enact the revenue provision included in the bill 
as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

           SECTION 1211 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 1211. LIMITATION ON CAPITAL LOSSES.

  (a) * * *
  (b) Other Taxpayers.--In the case of a taxpayer other than a 
corporation, losses from sales or exchanges of capital assets 
shall be allowed only to the extent of the gains from such 
sales or exchanges, plus (if such losses exceed such gains) the 
lower of--
          (1) [$3,000 ($1,500] $8,250 (1/2 such amount in the 
        case of a married individual filing a separate return), 
        or

           *       *       *       *       *       *       *

  (c) Adjustment for Inflation.--
          (1) In general.--In the case of any taxable year 
        beginning in a calendar year after 2002, the $8,250 
        amount contained in subsection (b)(1) shall each be 
        increased by an amount equal to--
                  (A) such amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which the taxable year begins by substituting 
                ``calendar year 2001'' for ``calendar year 
                1992'' in subparagraph (B) thereof.
          (2) Rounding.--If any increase determined under 
        paragraph (1) is not a multiple of $50, such increase 
        shall be rounded to the next highest multiple of $50.

                         VII. DISSENTING VIEWS

    The House Republican Leadership is following a strategy of 
weekly tax cut bills that quickly is becoming a parody of its 
own party. For every issue that concerns the American public, 
the House Republican Leadership responds with another weekly 
tax cut bill that may or may not have any relevance to the real 
economic problems being faced by the country. For example:
      Virtually all of the $5.6 trillion in surpluses 
projected last year have disappeared. Instead we will 
experience deficits for the foreseeable future. That has 
occurred even without any major increase yet in spending for 
war, the military, or homeland defense. The response of the 
House Republican Leadership is a series of weekly tax cut bills 
that would only worsen budget deficits.
      The country is faced with the prospect of war 
with Iraq and a long struggle against terrorism. Instead of 
asking all Americans to share in the cost of those struggles, 
the House Republican leadership seems willing to risk our 
military but provides more tax cuts, no shared sacrifice, for 
the wealthiest in our society.
      Both the Republicans and Democrats committed to 
walling off the Social Security and Medicare surpluses so that 
they will be available when the baby boom generation retires. 
Now, Social Security and Medicare will be raided for the 
foreseeable future and the House Republican Leadership would 
increase the raids on Social Security and Medicare through 
unfunded tax reduction for wealthy investors.
      The Republicans are unwilling to fund the large 
promises for increased education spending made in the No Child 
Left Behind Act. They argue that there are not sufficient 
resources available for education, but this week are willing to 
pass tax bills, H.R. 1619 and H.R. 5558, providing in total $65 
billion of tax relief for investors. They say there are 
inadequate funds for a meaningful Medicare prescription drug 
benefit, but here are more tax cuts.
      Millions of Americans find their retirement 
security is at risk because of stock market losses within their 
401(k) plans. The Republicans respond to that problem with a 
tax cut that helps only individuals with losses on investments 
outside their retirement plans. Rank-and-file workers with 
pension account losses get nothing because the tax treatment of 
these accounts has nothing to do with capital gains or losses.
      Millions of American investors have lost 
trillions of dollars because of the stock market decline. The 
Republicans respond to that problem with a tax bill that could 
create further losses in the stock market by encouraging sales 
of stock to take advantage of the higher limitation on the 
allowance for capital losses.
      Millions of Americans may lose their unemployment 
benefits through Congressional inaction. Rather than act on the 
real problems faced by those Americans, the House Republican 
Leadership wants more tax cuts for wealthy investors.
      As this Committee continues to report more tax 
cuts, the House Republican Leadership can't get around to 
acting on eight unfinished regular appropriations bills for the 
fiscal year that has already begun.
    The Treasury Department seems reluctant to be involved in 
the weekly charade of tax cut bills being considered by the 
House. Breaking with a long tradition, the Treasury is no 
longer represented in Committee markups, presumably to avoid a 
public position on the Committee bill.
    Assistant Secretary for Tax Policy Pam Olson issued a 
fairly ambiguous statement on the bill. In it she stated that 
she looks forward to ``continued work with the Committee in 
consideration of these ideas, as well as others which can 
address investor relief and economic growth.'' We join with her 
in indicating our willingness to consider ideas to reach those 
goals. However, we demand that the consideration be serious and 
the proposals be relevant to the problem. The Committee bill 
fails to meet both of these tests. Therefore, we cannot support 
it.

                                   Charles B. Rangel.
                                   Sander Levin.
                                   Robert T. Matsui.
                                   Ben Cardin.
                                   Jim McDermott.
                                   Richard E. Neal.
                                   William J. Jefferson.
                                   Pete Stark.
                                   Jerry Kleczka.
                                   Mike McNulty.
                                   Xavier Becerra.
                                   John Lewis.
                                   William J. Coyne.

                                
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