I

104TH CONGRESS

1ST SESSION H. R. 1042

To amend the Internal Revenue Code of 1986 to provide that no capital

gains tax shall apply to individuals.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 24, 1995

Mr. CRANE (for himself, Mr. BLUTE, Mr. MCKEON, and Mr. HANCOCK) introduced the following bill; which was referred to the Committee on Ways

and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

that no capital gains tax shall apply to individuals.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. 100-PERCENT CAPITAL GAIN EXCLUSION FOR

4 INDIVIDUALS.

5 (a) GENERAL RULE.—Part I of subchapter P of

6 chapter 1 of the Internal Revenue Code of 1986 (relating

7 to treatment of capital gains), as amended by subsection

8 (c)(1), is amended by adding at the end the following new

9 section:
2

•HR 1042 IH

1 ‘‘SEC. 1202. DEDUCTION FOR CAPITAL GAINS.

2 ‘‘(a) ALLOWANCE OF DEDUCTION.—If for any tax3 able year a taxpayer other than a corporation has a net

4 capital gain, 100 percent of the amount of the net capital

5 gain shall be a deduction from gross income.

6 ‘‘(b) ESTATES AND TRUSTS.—In the case of an es7 tate or trust, the deduction under subsection (a) shall be

8 computed by excluding the portion (if any) of the gains

9 for the taxable year from sales or exchanges of capital as10 sets which, under sections 652 and 662 (relating to inclu11 sions of amounts in gross income of beneficiaries of

12 trusts), is includible by the income beneficiaries as gain

13 derived from the sale or exchange of capital assets.

14 ‘‘(c) TRANSITIONAL RULE.—

15 ‘‘(1) IN GENERAL.—In the case of a taxable

16 year which includes January 1, 1995—

17 ‘‘(A) the amount taken into account as the

18 net capital gain under subsection (a) shall not

19 exceed the net capital gain determined by only

20 taking into account gains and losses properly

21 taken into account for the portion of the tax22 able year on or after January 1, 1995, and

23 ‘‘(B) if the net capital gain for such year

24 exceeds the amount taken into account under

25 subsection (a), the rate of tax imposed by sec-
3

•HR 1042 IH

1 tion 1 on such excess shall not exceed 28 per2 cent.

3 ‘‘(2) SPECIAL RULES FOR PASS-THRU ENTI4 TIES.—

5 ‘‘(A) IN GENERAL.—In applying paragraph

6 (1) with respect to any pass-thru entity, the de7 termination of when gains and losses are prop8 erly taken into account shall be made at the en9 tity level.

10 ‘‘(B) PASS-THRU ENTITY DEFINED.—For

11 purposes of subparagraph (A), the term ‘pass12 thru entity’ means—

13 ‘‘(i) a regulated investment company,

14 ‘‘(ii) a real estate investment trust,

15 ‘‘(iii) an S corporation,

16 ‘‘(iv) a partnership,

17 ‘‘(v) an estate or trust, and

18 ‘‘(vi) a common trust fund.’’

19 (b) DEDUCTION ALLOWABLE IN COMPUTING AD20 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

21 such Code is amended by inserting after paragraph (15)

22 the following new paragraph:

23 ‘‘(16) CAPITAL GAINS OF INDIVIDUALS.—The

24 deduction allowed by section 1202.’’

25 (c) CONFORMING AMENDMENTS.—
4

•HR 1042 IH

1 (1) Section 13113 of the Revenue Reconcili2 ation Act of 1993 (relating to 50-percent exclusion

3 for gain from certain small business stock), and the

4 amendments made by such section, are hereby re5 pealed; and the Internal Revenue Code of 1986 shall

6 be applied as if such section (and amendments) had

7 never been enacted.

8 (2) Subsection (h) of section 1 of such Code is

9 hereby repealed.

10 (3)(A) Section 170(e)(1)(B) of such Code is

11 amended by inserting ‘‘by a corporation’’ after ‘‘a

12 charitable contribution’’.

13 (4)(A) Section 172(d)(2) of such Code (relating

14 to modifications with respect to net operating loss

15 deduction) is amended to read as follows:

16 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX17 PAYERS OTHER THAN CORPORATIONS.—In the case

18 of a taxpayer other than a corporation—

19 ‘‘(A) the amount deductible on account of

20 losses from sales or exchanges of capital assets

21 shall not exceed the amount includible on ac22 count of gains from sales or exchanges of cap23 ital assets; and

24 ‘‘(B) the deduction provided by section

25 1202 shall not be allowed.’’
5

•HR 1042 IH

1 (B) Subparagraph (B) of section 172(d)(4) of

2 such Code is amended by inserting ‘‘, (2)(B),’’ after

3 ‘‘paragraph (1)’’.

4 (5)(A) Section 221 of such Code (relating to

5 cross reference) is amended to read as follows:

6 ‘‘SEC. 221. CROSS REFERENCES.

‘‘(1) For deduction for net capital gain, see section

1202.

‘‘(2) For deductions in respect of a decedent, see

section 691.’’

7 (B) The table of sections for part VII of sub8 chapter B of chapter 1 of such Code is amended by

9 striking ‘‘reference’’ in the item relating to section

10 221 and inserting ‘‘references’’.

11 (6) Paragraph (4) of section 642(c) of such

12 Code is amended to read as follows:

13 ‘‘(4) ADJUSTMENTS.—To the extent that the

14 amount otherwise allowable as a deduction under

15 this subsection consists of gain from the sale or ex16 change of capital assets held for more than 1 year,

17 proper adjustment shall be made for any deduction

18 allowable to the estate or trust under section 1202

19 (relating to deduction for net capital gain). In the

20 case of a trust, the deduction allowed by this sub21 section shall be subject to section 681 (relating to

22 unrelated business income).’’
6

•HR 1042 IH

1 (7) Paragraph (3) of section 643(a) of such

2 Code is amended by adding at the end thereof the

3 following new sentence: ‘‘The deduction under sec4 tion 1202 (relating to deduction for net capital gain)

5 shall not be taken into account.’’

6 (8) Paragraph (6)(C) of section 643(a) of such

7 Code is amended—

8 (A) by inserting ‘‘(i)’’ before ‘‘there’’, and

9 (B) by inserting ‘‘, and (ii) the deduction

10 under section 1202 (relating to deduction for

11 excess of capital gains over capital losses) shall

12 not be taken into account’’ before the period at

13 the end thereof.

14 (9) Paragraph (4) of section 691(c) of such

15 Code is amended by striking ‘‘1(h), 1201’’ and in16 serting ‘‘1201, 1202,’’.

17 (10) The second sentence of paragraph (2) of

18 section 871(a) of such Code is amended by inserting

19 ‘‘such gains and losses shall be determined without

20 regard to section 1202 (relating to deduction for net

21 capital gain) and’’ after ‘‘except that’’.

22 (11)(A) Subparagraph (B) of section 904(b)(2)

23 of such Code is amended by striking so much of

24 such subparagraph as precedes clause (i) and insert25 ing the following:
7

•HR 1042 IH

1 ‘‘(B) SPECIAL RULES WHERE CORPORATE

2 CAPITAL RATE GAIN DIFFERENTIAL.—In the

3 case of a corporation, for any taxable year for

4 which there is a capital gain rate differential—

5 ’’.

6 (B) Subparagraphs (D) and (E) of section

7 904(b)(3) are amended to read as follows:

8 ‘‘(D) CAPITAL GAIN RATE DIFFEREN9 TIAL.—There is a capital gain rate differential

10 for any taxable year if any rate of tax imposed

11 by section 11, 511, or 831(a) or (b) (whichever

12 applies) exceeds the alternative rate of tax

13 under section 1201(a) (determined without re14 gard to the last sentence of section 11(b)(1)).

15 ‘‘(E) RATE DIFFERENTIAL PORTION.—The

16 rate differential portion of foreign source net

17 capital gain, net capital, or the excess of net

18 capital gain from sources within the United

19 States over net capital gain, as the case may

20 be, is the same proportion of such amount as—

21 ‘‘(i) the excess of the highest rate of

22 tax specified in section 11(b)(1) over the

23 alternative rate of tax under section

24 1201(a), bears to
8

•HR 1042 IH

1 ‘‘(ii) the highest rate of tax specified

2 in section 11(b)(1).’’

3 (12) Subsection (d) of section 1044 of such

4 Code is amended by striking the last sentence.

5 (13) Section 1402(i)(1) of such Code is amend6 ed to read as follows:

7 ‘‘(1) IN GENERAL.—In determining the net

8 earnings from self-employment of any options dealer

9 or commodities dealer—

10 ‘‘(A) notwithstanding subsection (a)(3)(A),

11 there shall not be excluded any gain or loss (in

12 the normal course of the taxpayer’s activity of

13 dealing in or trading section 1256 contracts)

14 from section 1256 contracts or property related

15 to such contracts, and

16 ‘‘(B) the deduction provided by section

17 1202 shall not apply.’’

18 (d) CLERICAL AMENDMENT.—The table of sections

19 for part I of subchapter P of chapter 1 of such Code is

20 amended by adding at the end thereof the following new

21 item:

‘‘Sec. 1202. Deduction for capital gains.’’

22 (e) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to taxable years ending after De24 cember 31, 1994.

Æ