Income Tax Fairness Act of 1999

Summary: Income Tax Fairness Act of 1999 - Amends the Internal Revenue Code to reduce the income tax rates imposed on individual taxpayers by three percentage points. 
Repeals the current requirement that property acquired from a decedent be valued, generally, at its fair market value at the date of the decedent's death or, after December 31, 1997, at the basis in the decedent's hands. 
Treats the carryover basis property acquired from or passed from a decedent dying after December 31, 1999, as though it were acquired by gift.  Provides for adjustments in the basis of such property, by specified formulae, for family farms and closely held businesses. Requires an additional adjustment for death taxes equal to the net appreciation of such property multiplied by the Federal marginal estate tax. 
Increases from 39 years to 100 years the applicable recovery period used to determine the depreciation deduction for nonresidential real property.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Income Tax Fairness Act of 1999''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) Working people provide about 65 percent of Federal 
        revenue through social security taxes on their earnings and 
        through income taxes on their earnings and employment-related 
        retirement income.
            (2) By contrast, income taxes on unearned income produce 
        only about 11 percent of total Federal revenue.
            (3) Practically all wage and salary income is required to 
        be reported on personal income tax returns and, except for 
        those receiving earned income credits, is generally fully taxed 
        at regular income tax rates.
            (4) By contrast, unearned income (such as capital gains, 
        dividends, interest, and rental income) is favored by a large 
        number of special tax provisions, so that (A) some unearned 
        income is taxed at lower rates, (B) some unearned income is 
        tax-deferred and the income taxes need not be paid until many 
        years after the income is accrued, and (C) large amounts of 
        unearned income will never be taxed at all under present law.
            (5) Working people are subject to social security taxes as 
        well as income taxes, and for over 90 percent of the population 
        the combined tax on earned income--30.3 percent or 43.3 
        percent--is higher than the income tax rates of 15 percent and 
        28 percent that apply to unearned income.
            (6) The market value of all stocks traded on the New York 
        Stock Exchange and the over-the-counter market (NASDAQ) was 
        about 3 trillion dollars in early 1989. In early 1999 it is 
        more than 13 trillion dollars. Thus there appears to be roughly 
        10 trillion dollars of realized and unrealized capital gains on 
        these stocks, plus additional large amounts of capital gains on 
        foreign stocks, real estate, and other assets.
            (7) Large amounts of capital gains will never be taxed 
        under present law, because (A) capital gains are not taxed 
        until the asset is sold or transferred, and (B) unrealized 
        capital gains are never taxed if the owner holds the asset for 
        life and bequeaths it to his or her heirs, even if the heirs 
        sell it immediately after death.
            (8) Owners of nonresidential real estate are allowed 
        depreciation deductions for the full cost of buildings over 39 
        years, even though the buildings when built are intended to 
        stand, and usually do stand, for 100 years or more.

SEC. 3. REDUCTION IN INDIVIDUAL INCOME TAX RATES.

    (a) In General.--Each of the tables contained in subsections (a), 
(b), (c), (d), and (e) of section 1 of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``15%'' and inserting ``12%'';
            (2) by striking ``28%'' and inserting ``25%'';
            (3) by striking ``31%'' and inserting ``28%'';
            (4) by striking ``36%'' and inserting ``33%''; and
            (5) by striking ``39.6%'' and inserting ``36.6%''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1999.
    (c) Section 15 Not To Apply.--The amendment made by subsection (a) 
shall not be treated as a change in the rate of a tax imposed by 
chapter 1 of the Internal Revenue Code of 1986 for purposes of section 
15 of such Code.

SEC. 4. REPEAL OF INCREASE IN BASIS OF PROPERTY ACQUIRED FROM A 
              DECEDENT.

    (a) In General.--Section 1014 of the Internal Revenue Code of 1986 
(relating to basis of property acquired from a decedent) is hereby 
repealed.
    (b) Basis To Be Determined Under Rules Applicable to Gifts.--
Section 1015 of such Code (relating to basis of property acquired by 
gifts and transfers in trusts) is amended by adding at the end the 
following new subsection:
    ``(f) Property Acquired From or Passing From a Decedent.--
            ``(1) In general.--Carryover basis property shall be 
        treated for purposes of subsection (a) as acquired by gift for 
        purposes of this section.
            ``(2) Carryover basis property defined.--For purposes of 
        this section, the term `carryover basis property' means 
        property acquired from or passed from a decedent dying after 
        December 31, 1999.
            ``(3) Property acquired from a decedent.--Section 1014(b) 
        (as in effect on the day before the date of the enactment of 
        the Income Tax Fairness Act of 1999) shall apply for purposes 
        of whether property is considered to have been acquired from or 
        to have passed from the decedent.
            ``(4) Increase in basis for family farm and closely held 
        business property and for estate tax paid.--The basis of any 
        carryover basis property is the sum of--
                    ``(A) the basis determined under subsection (a);
                    ``(B) the family farm adjustment for such property;
                    ``(C) the closely held business adjustment for such 
                property; and
                    ``(D) the death tax adjustment for such property.
            ``(5) Family farm adjustment.--
                    ``(A) In general.--In the case of carryover basis 
                property which is qualified real property (as defined 
                in section 2032A(b)), the family farm adjustment is the 
                portion of the aggregate family farm adjustment which 
                is allocated to the property pursuant to this section.
                    ``(B) Adjustment not to apply if estate tax benefit 
                is or would be recaptured.--The basis of any property 
                shall be determined without regard to this paragraph if 
                any additional estate tax is or has been imposed by 
                section 2032A(c) with respect to such property (or 
                would have been so imposed if section 2032A had been 
                elected with respect to such property).
                    ``(C) Aggregate family farm adjustment.--In the 
                case of any estate, the aggregate family farm 
                adjustment is the amount (if any) by which--
                            ``(i) $1,000,000, exceeds
                            ``(ii) the aggregate of the initial bases 
                        of all carryover basis property which is 
                        qualified real property (as so defined).
            ``(6) Closely held business adjustment.--
                    ``(A) In general.--In the case of carryover basis 
                property which is an interest in a closely held 
                business (as defined in section 6166(b)), the closely 
                held business adjustment is the portion of the 
                aggregate closely held business adjustment which is 
                allocated to the property pursuant to this section.
                    ``(B) Aggregate closely held business adjustment.--
                In the case of any estate, the aggregate closely held 
                business adjustment is the amount (if any) by which--
                            ``(i) $1,000,000, exceeds
                            ``(ii) the sum of--
                                    ``(I) the aggregate of the initial 
                                bases of all carryover basis property 
                                which is an interest in closely held 
                                business (as so defined), plus
                                    ``(II) the aggregate family farm 
                                adjustment under paragraph (3).
            ``(7) Death tax adjustment.--
                    ``(A) In general.--The death tax adjustment for any 
                carryover basis property is the portion of the 
                aggregate death tax adjustment which is allocated to 
                the property pursuant to this section.
                    ``(B) Limitation.--The death tax adjustment for any 
                property shall not exceed--
                            ``(i) the net appreciation of such 
                        property, multiplied by
                            ``(ii) the Federal marginal estate tax 
                        rate.
                    ``(C) Net appreciation.--For purposes of this 
                paragraph, the net appreciation in value of any 
                property is the amount by which--
                            ``(i) the fair market value of such 
                        property, exceeds
                            ``(ii) the basis determined under 
                        subsection (a) increased by the adjustments 
                        described in subparagraphs (B) and (C) of 
                        paragraph (3) for such property.
                    ``(D) Aggregate death tax adjustment.--In the case 
                of any estate--
                            ``(i) In general.--The aggregate death tax 
                        adjustment is the product of--
                                    ``(I) the aggregate net 
                                appreciation of all properties which 
                                have net appreciation, and
                                    ``(II) the Federal marginal estate 
                                tax rate.
                            ``(ii) Limitation.--The amount taken into 
                        account under clause (i)(I) shall not exceed 
                        the taxable estate.
                            ``(iii) Federal marginal estate tax rate.--
                        The term `Federal marginal estate tax rate' 
                        means the highest rate in the rate schedule set 
                        forth in section 2001(c)--
                                    ``(I) which is used in determining 
                                the tentative tax under section 
                                2001(b)(1) with respect to the estate 
                                of the decedent, and
                                    ``(II) the amount subject to which 
                                is at least $50,000.
                        In no event shall the Federal marginal estate 
                        tax rate be less than 30 percent.
            ``(8) Allocation rules.--The executor shall allocate the 
        adjustments under this subsection among the properties on the 
        return of the tax imposed by chapter 11.''.
    (c) Conforming Amendments.--
            (1) The table of sections for part II of subchapter O of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1014.
            (2) The heading of section 1015 of such Code is amended to 
        read as follows:

``SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM A DECEDENT, OR 
              TRANSFERRED IN TRUST.''.

            (3) The table of sections for part II of subchapter O of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1015 and inserting the following new item:

                              ``Sec. 1015. Basis of property acquired 
                                        by gift, from a decedent, or 
                                        transferred in trust.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to decedents dying after December 31, 1999.

SEC. 5. INCREASE IN COST RECOVERY PERIOD FROM 39 YEARS TO 100 YEARS FOR 
              NONRESIDENTIAL REAL PROPERTY.

    (a) In General.--The table in section 168(c) of such Code (relating 
to applicable recovery period) is amended by striking ``39 years'' and 
inserting ``100 years''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service by the taxpayer after December 31, 1999.