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[Journal of the House of Representatives, 1995]
[Wednesday, April 5, 1995 (56), Para 56.15 Point of Order]
[Pages 575-576]
[From the U.S. Government Publishing Office, www.gpo.gov]

para.56.15  point of order

  Mr. MORAN, having previously cited clause 5(c) of rule XXI in a 
parliamentary inquiry as being appliable to the bill, made a point of 
order, and said:

  ``Mr. Speaker, I made a parliamentary inquiry, but I would state a 
point of order that any vote on this bill should require a three-fifths 
vote. If it does not require that, then I would appeal the ruling of the 
Chair.''.

  Mr. ARCHER was recognized to speak to the point of order, and said:

  ``Mr. Speaker, I would be pleased to try to help the Chair to support 
his ruling.
  ``First, as a result of the enactment of the 50 percent exclusion 
applicable generally, taxpayers, other than those described in the 
following two paragraphs, would have a tax rate lower than 28 percent. 
Thus, the 28 percent maximum rate of section 1(h) of current law would 
not cause a reduction in tax liability as compared with that under 
current law; that is, as relates to current law liability, the provision 
would be inoperative.
  ``No. 2, the 50 percent exclusion would not apply to collectibles. 
Under H.R. 1215, for this group of taxpayers the maximum rate of 28 
percent is retained in H.R. 1215.
  ``No. 3, a question has been raised as to the potential application of 
the 28 percent maximum rate under current law for taxpayers currently 
qualifying for the special rules of existing section of the law, 1202. 
In light of the fact that this provision would be repealed by 1215, the 
maximum rate of 28 percent would have no further application. Moreover, 
it should be noted that the special rules in section 1202 are an 
exclusion provision rather than a rate provision.
  ``Further, it should be noted that concerns as to whether repeal of 
current law, section 1202, in conjunction with the repeal of current 
law, section 1(h), constitutes a rate increase, are focused on the 
effective rate impact rather than the occurrence of any income tax rate 
increase.
  ``The House rule in question is not intended to apply to effective 
rate changes.''.

  Mr. MORAN was recognized to speak further to the point of order, and 
said:

  ``Mr. Speaker, I would like to underscore the last comment that was 
made by the distinguished chairman of the Committee on Ways and Means 
that the House rule in question is not intended to apply to effective 
tax rate changes. There was never any reference to effective rate 
changes. In fact, it was any income tax rate increase. I read the debate 
again that occurred on the first day of this session. We are now making 
a distinction between effective rate changes apparently and statutory 
rate changes, although both apply here. I do have a letter from the 
Treasury Department explaining that this is a tax rate increase.
  ``How it occurred, Mr. Speaker, is in the 1993 Omnibus Budget 
Reconciliation Act we did pass a capital gains tax rate reduction. What 
it said is that when people invest in small capitalized firms for five 
years, their capital gains tax is reduced by 50 percent. What this bill 
did was to strike the capital gains rate of 28 percent, raise it to 39.6 
percent, and then apply the 50 percent preference for capital gains 
investment. What that means is that the effective capital gains rate is 
19.8 percent if this bill were to pass, whereas today there are 
investors getting a 14 percent tax rate on capital gains investments.
  ``Now, this is not an obscure provision. It is a $725 million capital 
gains provision that was passed in the 1993 Budget Reconciliation Act. 
What we have done is for some investors who have invested hundreds of 
millions of dollars in small capitalized firms, is increased their tax 
rate from 14 percent to 19.8 percent. That is an increase in the income 
tax rate. It is both a statutory increase, in that we remove the 28 
percent level and put in 39.6 percent. It is also an effective rate 
increase because it changes from 14 percent to 19.8 percent. That is 
what the letter from both the Treasury Department and the Small Business 
Administration underscores, that in fact investors would be paying a 
higher capital gains rate.''.

  Mr. CARDIN was recognized to speak to the point of order, and said:

  ``Mr. Speaker, I do.
  ``Mr. Speaker, this is a very important ruling. It is the first one 
that the Chair has had to make on the new rule XXI that requires an 
extraordinary vote on a tax rate increase. The language, as I understand 
it, is when the Federal tax rate increase applies we need a three-fifths 
vote.
  ``If I understand the potential ruling of the Chair, if the Chair 
rules that this bill does not raise a rate and therefore does not need 
an extraordinary vote, what the Chair is saying is that legislation 
which subjects a larger percentage of a taxpayer's income to an existing 
tax rate would not be a tax rate increase under the provisions of rule 
XXI. That would mean that we could effectively raise tax rates in this 
country by just subjecting a larger amount of a person's income to the 
tax rate, thereby accomplishing the effect of a tax rate increase under 
the potential ruling of the Chair without raising the rate.
  ``I just really want to point that out to the Chair before he makes 
his ruling, because effectively if he rules against the gentleman from 
Virginia [Mr. Moran] rule XXI is meaningless.''.

  Mr. SKAGGS was recognized to speak to the point of order, and said:

  ``Mr. Speaker, one further point I think needs to be made on this.

  ``During the debate on opening day, it was touted that this rules 
change was remedial in nature. It was to be viewed expansively as 
remedying a propensity of the House that needed to be curtailed. A 
narrow reading such as is advocated by the chairman of the Committee on 
Ways and Means a few minutes ago flies in the face of all of the 
advocacy, the legislative history, if you will, of this rules change, 
which is the only basis that the House has and that the Chair has for 
informing a ruling.
  ``To take a provision that was intended to be remedial, and therefore 
viewed expansively, and interpret it narrowly belies the absurdity of 
the rules change to begin with.''.

[[Page 576]]

  Mr. McDERMOTT was recognized to speak to the point of order, and 
said:

  ``Yes, Mr. Speaker.
  ``Mr. Speaker, if I understand the ruling the Chair is about to make, 
you are saying for those who do not understand arcane tax law, if we 
raise taxes on people but we do it in a sneaky, kind of back-door way 
of doing it, that, Mr. Speaker, if we do it in a legislatively, 
carefully crafted way, we can get away with it. If we do it straight 
out and say to small business, your taxes go from 14 percent to 19 
percent just like that, that would require a 60-percent vote. But if we 
can find some way parliamentarily to swing around it, whatever the 
effect on people is does not make any difference.
  ``Is that what the Chair is saying?''.

  Mr. LINDER was recognized to speak to the point of order, and said:
  ``Mr. Speaker, this does not seem all that complicated. It does not 
change any rates of taxation of capital gains. It excludes 50 percent 
of the gain. Therefore, you are taxed at the 39.6-percent tax rate. 
Fifty percent of any gain would be excluded, giving an effective rate 
of 19.8 percent, a lower effective rate.
  ``If you happen to be taxed at a 35-percent tax rate, 50 percent of 
the gain would be excluded, giving you a 17.5-percent tax. It lowers 
the effective rate in every instance by excluding half of the gain from 
any taxation at all.''.

  The SPEAKER pro tempore, Mr. DREIER, overruled the point of order, 
and said:

  ``The Chair is prepared to rule.
  ``In deference to the specialized expertise that has been provided, 
the Chair rules that this bill does not include a Federal income tax 
rate increase.''.

  Mr. MORAN appealed the ruling of the Chair.
  Mr. ARCHER moved to lay the appeal on the table.
  The question being put, viva voce,
  Will the House lay on the table the appeal of the ruling of the 
Chair?
  The SPEAKER pro tempore, Mr. DREIER, announced that the nays had it.
  Mr. MFUME demanded a recorded vote on agreeing to said motion, which 
demand was supported by one-fifth of a quorum, so a recorded vote was 
ordered.
  The vote was taken by electronic device.

It was decided in the

Yeas

228

affirmative

Nays

204
```