I

103D CONGRESS

1ST SESSION H. R. 151

To amend the Internal Revenue Code of 1986 to provide for a maximum

long-term capital gains rate of 15 percent and indexing of certain capital

assets, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. CRANE (for himself and Mr. SHAYS) 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

for a maximum long-term capital gains rate of 15 percent and indexing of certain capital assets, and for other

purposes.

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

3 SECTION 1. REDUCTION IN INDIVIDUAL CAPITAL GAINS

4 RATE.

5 (a) GENERAL RULE.—Subsection (h) of section 1 of

6 the Internal Revenue Code of 1986 (relating to maximum

7 capital gains rate) is amended to read as follows:

8 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
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1 ‘‘(1) IN GENERAL.—If a taxpayer has a net

2 capital gain for any taxable year, then the tax im3 posed by this section shall not exceed the sum of—

4 ‘‘(A) a tax computed at the rates and in

5 the same manner as if this subsection had not

6 been enacted on the taxable income reduced by

7 the net capital gain, plus

8 ‘‘(B) a tax equal to the sum of—

9 ‘‘(i) 7.5 percent of so much of the net

10 capital gain as does not exceed—

11 ‘‘(I) the maximum amount of

12 taxable income to which the 15-per13 cent rate applies under the table ap14 plicable to the taxpayer, reduced by

15 ‘‘(II) the taxable income to which

16 subparagraph (A) applies, plus

17 ‘‘(ii) 15 percent of the net capital gain

18 in excess of the net capital gain to which

19 clause (i) applies.

20 ‘‘(2) TRANSITIONAL RULE.—In the case of a

21 taxable year which begins before January 1, 1994,

22 and ends after December 31, 1993, the amount of

23 the net capital gain for purposes of paragraph (1)

24 shall not exceed the net capital gain determined by

25 only taking into account gains and losses properly
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1 taken into account for the portion of the taxable

2 year after December 31, 1993.’’

3 (b) TECHNICAL AMENDMENTS.—

4 (1) Paragraph (1) of section 170(e) of such

5 Code is amended by striking ‘‘the amount of gain’’

6 in the material following subparagraph (B)(ii) and

inserting ‘‘13⁄28 (19 7 ⁄34 in the case of a corporation)

8 of the amount of gain’’.

9 (2)(A) The second sentence of section

10 7518(g)(6)(A) of such Code is amended by striking

11 ‘‘28 percent (34 percent in the case of a corpora12 tion)’’ and inserting ‘‘15 percent’’.

13 (B) The second sentence of section

14 607(h)(6)(A) of the Merchant Marine Act, 1936, is

15 amended by striking ‘‘28 percent (34 percent in the

16 case of a corporation)’’ and inserting ‘‘15 percent’’.

17 SEC. 2. REDUCTION IN CORPORATE CAPITAL GAINS RATE.

18 (a) GENERAL RULE.—Section 1201 of the Internal

19 Revenue Code of 1986 (relating to alternative tax for cor20 porations) is amended by redesignating subsection (b) as

21 subsection (c), and by striking subsection (a) and inserting

22 the following:

23 ‘‘(a) GENERAL RULE.—If for any taxable year a cor24 poration has a net capital gain, then, in lieu of the tax

25 imposed by section 11, 511, or 831(a) (whichever applies),
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1 there is hereby imposed a tax (if such tax is less than

2 the tax imposed by such section) which shall consist of

3 the sum of—

4 ‘‘(1) a tax computed on the taxable income re5 duced by the net capital gain, at the same rates and

6 in the same manner as if this subsection had not

7 been enacted, plus

8 ‘‘(2) a tax of 15 percent of the net capital gain.

9 ‘‘(b) TRANSITIONAL RULE.—In the case of a taxable

10 year which begins before January 1, 1994, and ends after

11 December 31, 1993, the amount of the net capital gain

12 for purposes of subsection (a) shall not exceed the net cap13 ital gain determined by only taking into account gains and

14 losses properly taken into account for the portion of the

15 taxable year after December 31, 1993.’’

16 (b) TECHNICAL AMENDMENTS.—

17 (1) Clause (iii) of section 852(b)(3)(D) of such

18 Code is amended by striking ‘‘66 percent’’ and in19 serting ‘‘85 percent’’.

20 (2) Paragraphs (1) and (2) of section 1445(e)

21 of such Code are each amended by striking ‘‘34 per22 cent’’ and inserting ‘‘15 percent’’.
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1 SEC. 3. REDUCTION OF MINIMUM TAX RATE ON CAPITAL

2 GAINS.

3 Subparagraph (A) of section 55(b)(1) of the Internal

4 Revenue Code of 1986 (relating to tentative minimum tax)

5 is amended to read as follows:

6 ‘‘(A) the sum of—

7 ‘‘(i) 15 percent of the lesser of—

8 ‘‘(I) the net capital gain (deter9 mined with the adjustments provided

10 in this part and (to the extent appli11 cable) the limitations of sections

12 1(h)(2) and 1201(b)), or

13 ‘‘(II) so much of the alternative

14 minimum taxable income for the tax15 able year as exceeds the exemption

16 amount, plus

17 ‘‘(ii) 20 percent (24 percent in the

18 case of a taxpayer other than a corpora19 tion) of the amount (if any) by which the

20 excess referred to in clause (i)(II) exceeds

21 the net capital gain (as so determined), re22 duced by’’.

23 SEC. 4. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF

24 DETERMINING GAIN OR LOSS.

25 (a) IN GENERAL.—Part II of subchapter O of chap26 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 basic rules of general application) is amended by inserting

2 after section 1021 the following new section:

3 ‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES

4 OF DETERMINING GAIN OR LOSS.

5 ‘‘(a) GENERAL RULE.—

6 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD7 JUSTED BASIS.—Except as provided in paragraph

8 (2), if an indexed asset which has been held for

9 more than 1 year is sold or otherwise disposed of,

10 for purposes of this title the indexed basis of the

11 asset shall be substituted for its adjusted basis.

12 ‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—

13 The deduction for depreciation, depletion, and amor14 tization shall be determined without regard to the

15 application of paragraph (1) to the taxpayer or any

16 other person.

17 ‘‘(b) INDEXED ASSET.—

18 ‘‘(1) IN GENERAL.—For purposes of this sec19 tion, the term ‘indexed asset’ means—

20 ‘‘(A) stock in a corporation, and

21 ‘‘(B) tangible property (or any interest

22 therein), which is a capital asset of property

23 used in the trade or business (as defined in sec24 tion 1231(b)).
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1 ‘‘(2) CERTAIN PROPERTY EXCLUDED.—For

2 purposes of this section, the term ‘indexed asset’

3 does not include—

4 ‘‘(A) CREDITOR’S INTEREST.—Any interest

5 in property which is in the nature of a credi6 tor’s interest.

7 ‘‘(B) OPTIONS.—Any option or other right

8 to acquire an interest in property.

9 ‘‘(C) NET LEASE PROPERTY.—In the case

10 of a lessor, net lease property (within the mean11 ing of subsection (h)(1)).

12 ‘‘(D) CERTAIN PREFERRED STOCK.—Stock

13 which is fixed and preferred as to dividends and

14 does not participate in corporate growth to any

15 significant extent.

16 ‘‘(E) STOCK IN CERTAIN CORPORATIONS.—

17 Stock in—

18 ‘‘(i) an S corporation (within the

19 meaning of section 1361),

20 ‘‘(ii) a personal holding company (as

21 defined in section 542), and

22 ‘‘(iii) a foreign corporation.

23 ‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR24 PORATION WHICH IS REGULARLY TRADED ON NA25 TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of
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1 paragraph (2)(E) shall not apply to stock in a for2 eign corporation the stock of which is listed on the

3 New York Stock Exchange, the American Stock Ex4 change, or any domestic regional exchange for which

5 quotations are published on a regular basis other

6 than—

7 ‘‘(A) stock of a foreign investment com8 pany (within the meaning of section 1246(b)),

9 and

10 ‘‘(B) stock in a foreign corporation held by

11 a United States person who meets the require12 ments of section 1248(a)(2).

13 ‘‘(c) INDEXED BASIS.—For purposes of this sec14 tion—

15 ‘‘(1) INDEXED BASIS.—The indexed basis for

16 any asset is—

17 ‘‘(A) the adjusted basis of the asset, multi18 plied by

19 ‘‘(B) the applicable inflation ratio.

20 ‘‘(2) APPLICABLE INFLATION RATIO.—The ap21 plicable inflation ratio for any asset is the percent22 age arrived at by dividing—

23 ‘‘(A) the gross national product deflator

24 for the calendar quarter in which the disposi25 tion takes place, by
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1 ‘‘(B) the gross national product deflator

2 for the calendar quarter in which the asset was

3 acquired by the taxpayer (or, if later, the cal4 endar quarter ending December 31, 1993).

5 The applicable inflation ratio shall not be taken into

6 account unless it is greater than 1. The applicable

7 inflation ratio for any asset shall be rounded to the

8 nearest one-tenth of 1 percent.

9 ‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—

10 The gross national product deflator for any calendar

11 quarter is the implicit price deflator for the gross

12 national product for such quarter (as shown in the

13 first revision thereof).

14 ‘‘(4) SECRETARY TO PUBLISH TABLES.—The

15 Secretary shall publish tables specifying the applica16 ble inflation ratios for each calendar quarter.

17 ‘‘(d) SPECIAL RULES.—For purposes of this sec18 tion—

19 ‘‘(1) TREATMENT AS SEPARATE ASSET.—In the

20 case of any asset, the following shall be treated as

21 a separate asset:

22 ‘‘(A) a substantial improvement to prop23 erty,

24 ‘‘(B) in the case of stock of a corporation,

25 a substantial contribution to capital, and
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1 ‘‘(C) any other portion of an asset to the

2 extent that separate treatment of such portion

3 is appropriate to carry out the purposes of this

4 section.

5 ‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS

6 THROUGHOUT HOLDING PERIOD.—

7 ‘‘(A) IN GENERAL.—The applicable infla8 tion ratio shall be appropriately reduced for cal9 endar months at any time during which the

10 asset was not an indexed asset.

11 ‘‘(B) CERTAIN SHORT SALES.—For pur12 poses of applying subparagraph (A), an asset

13 shall be treated as not an indexed asset for any

14 short sale period during which the taxpayer or

15 the taxpayer’s spouse sells short property sub16 stantially identical to the asset. For purposes of

17 the preceding sentence, the short sale period be18 gins on the day after the substantially identical

19 property is sold and ends on the closing date

20 for the sale.

21 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU22 TIONS.—A distribution with respect to stock in a

23 corporation which is not a dividend shall be treated

24 as a disposition.
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1 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

2 LOSS.—To the extent that (but for this paragraph)

3 this section would create or increase a net ordinary

4 loss to which section 1231(a)(2) applies or an ordi5 nary loss to which any other provision of this title

6 applies, such provision shall not apply. The taxpayer

7 shall be treated as having a long-term capital loss in

8 an amount equal to the amount of the ordinary loss

9 to which the preceding sentence applies.

10 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

11 BEEN PRIOR APPLICATION OF SUBSECTION (a)(1)

12 WITH RESPECT TO THE TAXPAYER.—If there has

13 been a prior application of subsection (a)(1) to an

14 asset while such asset was held by the taxpayer, the

15 date of acquisition of such asset by the taxpayer

16 shall be treated as not earlier than the date of the

17 most recent such prior application.

18 ‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli19 cation of section 341(a) (relating to collapsible cor20 porations) shall be determined without regard to this

21 section.

22 ‘‘(e) CERTAIN CONDUIT ENTITIES.—

23 ‘‘(1) REGULATED INVESTMENT COMPANIES;

24 REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST

25 FUNDS.—
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1 ‘‘(A) IN GENERAL.—Stock in a qualified

2 investment entity shall be an indexed asset for

3 any calendar month in the same ratio as the

4 fair market value of the assets held by such en5 tity at the close of such month which are in6 dexed assets bears to the fair market value of

7 all assets of such entity at the close of such

8 month.

9 ‘‘(B) RATIO OF 90 PERCENT OR MORE.—If

10 the ratio for any calendar month determined

11 under subparagraph (A) would (but for this

12 subparagraph) be 90 percent or more, such

13 ratio for such month shall be 100 percent.

14 ‘‘(C) RATIO OF 10 PERCENT OR LESS.—If

15 the ratio for any calendar month determined

16 under subparagraph (A) would (but for this

17 subparagraph) be 10 percent or less, such ratio

18 for such month shall be zero.

19 ‘‘(D) VALUATION OF ASSETS IN CASE OF

20 REAL ESTATE INVESTMENT TRUSTS.—Nothing

21 in this paragraph shall require a real estate in22 vestment trust to value its assets more fre23 quently than once each 36 months (except

24 where such trust ceases to exist). The ratio

25 under subparagraph (A) for any calendar
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1 month for which there is no valuation shall be

2 the trustee’s good faith judgment as to such

3 valuation.

4 ‘‘(E) QUALIFIED INVESTMENT ENTITY.—

5 For purposes of this paragraph, the term

6 ‘qualified investment entity’ means—

7 ‘‘(i) a regulated investment company

8 (within the meaning of section 851),

9 ‘‘(ii) a real estate investment trust

10 (within the meaning of section 856), and

11 ‘‘(iii) a common trust fund (within the

12 meaning of section 584).

13 ‘‘(2) PARTNERSHIPS.—In the case of a partner14 ship, the adjustment made under subsection (a) at

15 the partnership level shall be passed through to the

16 partners.

17 ‘‘(3) SUBCHAPTER S CORPORATIONS.—In the

18 case of an electing small business corporation, the

19 adjustment under subsection (a) at the corporate

20 level shall be passed through to the shareholders.

21 ‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—

22 ‘‘(1) IN GENERAL.—This section shall not apply

23 to any sale or other disposition of property between

24 related persons except to the extent that the basis
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1 of such property in the hands of the transferee is a

2 substituted basis.

3 ‘‘(2) RELATED PERSONS DEFINED.—For pur4 poses of this section, the term ‘related persons’

5 means—

6 ‘‘(A) persons bearing a relationship set

7 forth in section 267(b), and

8 ‘‘(B) persons treated as single employer

9 under subsection (b) or (c) of section 414.

10 ‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST11 MENT OR DEPRECIATION ALLOWANCE.—If any person

12 transfers cash, debt, or any other property to another per13 son and the principal purpose of such transfer is—

14 ‘‘(1) to secure or increase an adjustment under

15 subsection (a), or

16 ‘‘(2) to increase (by reason of an adjustment

17 under subsection (a)) a deduction for depreciation,

18 depletion, or amortization,

19 the Secretary may disallow part or all of such adjustment

20 or increase.

21 ‘‘(h) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) NET LEASE PROPERTY DEFINED.—The

23 term ‘net lease property’ means leased real property

24 where—
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1 ‘‘(A) the term of the lease (taking into ac2 count options to renew) was 50 percent or more

3 of the useful life of the property, and

4 ‘‘(B) for the period of the lease, the sum

5 of the deductions with respect to such property

6 which are allowable to the lessor solely by rea7 son of section 162 (other than rents and reim8 bursed amounts with respect to such property)

9 is 15 percent or less of the rental income pro10 duced by such property.

11 ‘‘(2) STOCK INCLUDES INTEREST IN COMMON

12 TRUST FUND.—The term ‘stock in a corporation’ in13 cludes any interest in a common trust fund (as de14 fined in section 584(a)).

15 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

16 such regulations as may be necessary or appropriate to

17 carry out the purposes of this section.’’

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

19 for part II of subchapter O of such chapter 1 of such Code

20 is amended by inserting after the item relating to section

21 1021 the following new item:

‘‘Sec. 1022. Indexing of certain assets for purposes of determining gain or loss.’’

22 (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE23 TERMINING EARNINGS AND PROFITS.—Subsection (f) of

24 section 312 of such Code (relating to effect on earnings
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1 and profits of gain or loss and of receipt of tax-free dis2 tributions) is amended by adding at the end thereof the

3 following new paragraph:

4 ‘‘(3) EFFECT ON EARNINGS AND PROFITS OF

5 INDEXED BASIS.—

‘‘For substitution of indexed basis for adjusted

basis in the case of the disposition of certain assets

after December 31, 1993, see section 1022(a)(1).’’.

6 SEC. 5. INDEXING OF LIMITATION ON CAPITAL LOSSES OF

7 INDIVIDUALS.

8 Section 1211 of the Internal Revenue Code of 1986

9 (relating to limitation on capital losses) is amended by

10 adding at the end thereof the following new subsection:

11 ‘‘(c) INDEXATION OF LIMITATION ON

12 NONCORPORATE TAXPAYERS.—

13 ‘‘(1) IN GENERAL.—In the case of any taxable

14 year beginning in a calendar year after 1993, the

15 $3,000 and $1,500 amounts under subsection (b)(1)

16 shall be increased by an amount equal to—

17 ‘‘(A) such dollar amount, multiplied by

18 ‘‘(B) the applicable inflation adjustment

19 for the calendar year in which the taxable year

20 begins.’’

21 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—

22 For purposes of paragraph (1), the applicable infla23 tion adjustment for any calendar year is the percent24 age (if any) by which—
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1 ‘‘(A) the gross national product deflator

2 for the last calendar quarter of the preceding

3 calendar year, exceeds

4 ‘‘(B) the gross national product deflator

5 for the last calendar quarter of 1992.

6 For purposes of this paragraph, the term ‘gross na7 tional product deflator’ has the meaning given such

8 term by section 1022(c)(3).’’

9 SEC. 6. EFFECTIVE DATES.

10 (a) IN GENERAL.—Except as provided in subsection

11 (b), the amendments made by this Act shall apply to sales

12 or exchanges occurring after December 31, 1993, in tax13 able years ending after such date.

14 (b) INDEXING OF LOSS LIMITATION.—The amend15 ments made by section 5 of this Act shall apply to taxable

16 years beginning after December 31, 1993.

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