I

106TH CONGRESS

1ST SESSION H. R. 1390

To amend the Internal Revenue Code of 1986 to reduce the rates of income

tax imposed on individual taxpayers by 3 percentage points, to provide

for a carryover basis of property acquired from a decedent, and for

other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 13, 1999

Mr. OWENS 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 reduce

the rates of income tax imposed on individual taxpayers

by 3 percentage points, to provide for a carryover basis

of property acquired from a decedent, 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. SHORT TITLE.

4 This Act may be cited as the ‘‘Income Tax Fairness

5 Act of 1999’’.

6 SEC. 2. FINDINGS.

7 Congress finds the following:
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1 (1) Working people provide about 65 percent of

2 Federal revenue through social security taxes on

3 their earnings and through income taxes on their

4 earnings and employment-related retirement income.

5 (2) By contrast, income taxes on unearned in6 come produce only about 11 percent of total Federal

7 revenue.

8 (3) Practically all wage and salary income is re9 quired to be reported on personal income tax returns

10 and, except for those receiving earned income cred11 its, is generally fully taxed at regular income tax

12 rates.

13 (4) By contrast, unearned income (such as cap14 ital gains, dividends, interest, and rental income) is

15 favored by a large number of special tax provisions,

16 so that (A) some unearned income is taxed at lower

17 rates, (B) some unearned income is tax-deferred and

18 the income taxes need not be paid until many years

19 after the income is accrued, and (C) large amounts

20 of unearned income will never be taxed at all under

21 present law.

22 (5) Working people are subject to social secu23 rity taxes as well as income taxes, and for over 90

24 percent of the population the combined tax on

25 earned income—30.3 percent or 43.3 percent—is
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1 higher than the income tax rates of 15 percent and

2 28 percent that apply to unearned income.

3 (6) The market value of all stocks traded on

4 the New York Stock Exchange and the over-the5 counter market (NASDAQ) was about 3 trillion dol6 lars in early 1989. In early 1999 it is more than 13

7 trillion dollars. Thus there appears to be roughly 10

8 trillion dollars of realized and unrealized capital

9 gains on these stocks, plus additional large amounts

10 of capital gains on foreign stocks, real estate, and

11 other assets.

12 (7) Large amounts of capital gains will never be

13 taxed under present law, because (A) capital gains

14 are not taxed until the asset is sold or transferred,

15 and (B) unrealized capital gains are never taxed if

16 the owner holds the asset for life and bequeaths it

17 to his or her heirs, even if the heirs sell it imme18 diately after death.

19 (8) Owners of nonresidential real estate are al20 lowed depreciation deductions for the full cost of

21 buildings over 39 years, even though the buildings

22 when built are intended to stand, and usually do

23 stand, for 100 years or more.
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1 SEC. 3. REDUCTION IN INDIVIDUAL INCOME TAX RATES.

2 (a) IN GENERAL.—Each of the tables contained in

3 subsections (a), (b), (c), (d), and (e) of section 1 of the

4 Internal Revenue Code of 1986 is amended—

5 (1) by striking ‘‘15%’’ and inserting ‘‘12%’’;

6 (2) by striking ‘‘28%’’ and inserting ‘‘25%’’;

7 (3) by striking ‘‘31%’’ and inserting ‘‘28%’’;

8 (4) by striking ‘‘36%’’ and inserting ‘‘33%’’;

9 and

10 (5) by striking ‘‘39.6%’’ and inserting

11 ‘‘36.6%’’.

12 (b) EFFECTIVE DATE.—The amendment made by

13 subsection (a) shall apply to taxable years beginning after

14 December 31, 1999.

15 (c) SECTION 15 NOT TO APPLY.—The amendment

16 made by subsection (a) shall not be treated as a change

17 in the rate of a tax imposed by chapter 1 of the Internal

18 Revenue Code of 1986 for purposes of section 15 of such

19 Code.

20 SEC. 4. REPEAL OF INCREASE IN BASIS OF PROPERTY AC21 QUIRED FROM A DECEDENT.

22 (a) IN GENERAL.—Section 1014 of the Internal Rev23 enue Code of 1986 (relating to basis of property acquired

24 from a decedent) is hereby repealed.

25 (b) BASIS TO BE DETERMINED UNDER RULES AP26 PLICABLE TO GIFTS.—Section 1015 of such Code (relat-
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1 ing to basis of property acquired by gifts and transfers

2 in trusts) is amended by adding at the end the following

3 new subsection:

4 ‘‘(f) PROPERTY ACQUIRED FROM OR PASSING FROM

5 A DECEDENT.—

6 ‘‘(1) IN GENERAL.—Carryover basis property

7 shall be treated for purposes of subsection (a) as ac8 quired by gift for purposes of this section.

9 ‘‘(2) CARRYOVER BASIS PROPERTY DEFINED.—

10 For purposes of this section, the term ‘carryover

11 basis property’ means property acquired from or

12 passed from a decedent dying after December 31,

13 1999.

14 ‘‘(3) PROPERTY ACQUIRED FROM A DECE15 DENT.—Section 1014(b) (as in effect on the day be16 fore the date of the enactment of the Income Tax

17 Fairness Act of 1999) shall apply for purposes of

18 whether property is considered to have been acquired

19 from or to have passed from the decedent.

20 ‘‘(4) INCREASE IN BASIS FOR FAMILY FARM

21 AND CLOSELY HELD BUSINESS PROPERTY AND FOR

22 ESTATE TAX PAID.—The basis of any carryover

23 basis property is the sum of—

24 ‘‘(A) the basis determined under sub25 section (a);
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1 ‘‘(B) the family farm adjustment for such

2 property;

3 ‘‘(C) the closely held business adjustment

4 for such property; and

5 ‘‘(D) the death tax adjustment for such

6 property.

7 ‘‘(5) FAMILY FARM ADJUSTMENT.—

8 ‘‘(A) IN GENERAL.—In the case of carry9 over basis property which is qualified real prop10 erty (as defined in section 2032A(b)), the fam11 ily farm adjustment is the portion of the aggre12 gate family farm adjustment which is allocated

13 to the property pursuant to this section.

14 ‘‘(B) ADJUSTMENT NOT TO APPLY IF ES15 TATE TAX BENEFIT IS OR WOULD BE RECAP16 TURED.—The basis of any property shall be de17 termined without regard to this paragraph if

18 any additional estate tax is or has been imposed

19 by section 2032A(c) with respect to such prop20 erty (or would have been so imposed if section

21 2032A had been elected with respect to such

22 property).

23 ‘‘(C) AGGREGATE FAMILY FARM ADJUST24 MENT.—In the case of any estate, the aggre-
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1 gate family farm adjustment is the amount (if

2 any) by which—

3 ‘‘(i) $1,000,000, exceeds

4 ‘‘(ii) the aggregate of the initial bases

5 of all carryover basis property which is

6 qualified real property (as so defined).

7 ‘‘(6) CLOSELY HELD BUSINESS ADJUSTMENT.—

8 ‘‘(A) IN GENERAL.—In the case of carry9 over basis property which is an interest in a

10 closely held business (as defined in section

11 6166(b)), the closely held business adjustment

12 is the portion of the aggregate closely held busi13 ness adjustment which is allocated to the prop14 erty pursuant to this section.

15 ‘‘(B) AGGREGATE CLOSELY HELD BUSI16 NESS ADJUSTMENT.—In the case of any estate,

17 the aggregate closely held business adjustment

18 is the amount (if any) by which—

19 ‘‘(i) $1,000,000, exceeds

20 ‘‘(ii) the sum of—

21 ‘‘(I) the aggregate of the initial

22 bases of all carryover basis property

23 which is an interest in closely held

24 business (as so defined), plus
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1 ‘‘(II) the aggregate family farm

2 adjustment under paragraph (3).

3 ‘‘(7) DEATH TAX ADJUSTMENT.—

4 ‘‘(A) IN GENERAL.—The death tax adjust5 ment for any carryover basis property is the

6 portion of the aggregate death tax adjustment

7 which is allocated to the property pursuant to

8 this section.

9 ‘‘(B) LIMITATION.—The death tax adjust10 ment for any property shall not exceed—

11 ‘‘(i) the net appreciation of such prop12 erty, multiplied by

13 ‘‘(ii) the Federal marginal estate tax

14 rate.

15 ‘‘(C) NET APPRECIATION.—For purposes

16 of this paragraph, the net appreciation in value

17 of any property is the amount by which—

18 ‘‘(i) the fair market value of such

19 property, exceeds

20 ‘‘(ii) the basis determined under sub21 section (a) increased by the adjustments

22 described in subparagraphs (B) and (C) of

23 paragraph (3) for such property.

24 ‘‘(D) AGGREGATE DEATH TAX ADJUST25 MENT.—In the case of any estate—
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1 ‘‘(i) IN GENERAL.—The aggregate

2 death tax adjustment is the product of—

3 ‘‘(I) the aggregate net apprecia4 tion of all properties which have net

5 appreciation, and

6 ‘‘(II) the Federal marginal estate

7 tax rate.

8 ‘‘(ii) LIMITATION.—The amount taken

9 into account under clause (i)(I) shall not

10 exceed the taxable estate.

11 ‘‘(iii) FEDERAL MARGINAL ESTATE

12 TAX RATE.—The term ‘Federal marginal

13 estate tax rate’ means the highest rate in

14 the rate schedule set forth in section

15 2001(c)—

16 ‘‘(I) which is used in determining

17 the tentative tax under section

18 2001(b)(1) with respect to the estate

19 of the decedent, and

20 ‘‘(II) the amount subject to

21 which is at least $50,000.

22 In no event shall the Federal marginal es23 tate tax rate be less than 30 percent.

24 ‘‘(8) ALLOCATION RULES.—The executor shall

25 allocate the adjustments under this subsection
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1 among the properties on the return of the tax im2 posed by chapter 11.’’.

3 (c) CONFORMING AMENDMENTS.—

4 (1) The table of sections for part II of sub5 chapter O of chapter 1 of such Code is amended by

6 striking the item relating to section 1014.

7 (2) The heading of section 1015 of such Code

8 is amended to read as follows:

9 ‘‘SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM

10 A DECEDENT, OR TRANSFERRED IN TRUST.’’.

11 (3) The table of sections for part II of sub12 chapter O of chapter 1 of such Code is amended by

13 striking the item relating to section 1015 and insert14 ing the following new item:

‘‘Sec. 1015. Basis of property acquired by gift, from a decedent,

or transferred in trust.’’.

15 (d) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to decedents dying after December

17 31, 1999.

18 SEC. 5. INCREASE IN COST RECOVERY PERIOD FROM 39

19 YEARS TO 100 YEARS FOR NONRESIDENTIAL

20 REAL PROPERTY.

21 (a) IN GENERAL.—The table in section 168(c) of

22 such Code (relating to applicable recovery period) is

23 amended by striking ‘‘39 years’’ and inserting ‘‘100

24 years’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to property placed in service by

3 the taxpayer after December 31, 1999.

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