I

106TH CONGRESS

1ST SESSION H. R. 159

To amend the Internal Revenue Code of 1986 to lower the maximum capital

gains rate to 15 percent with respect to assets held for more than

3 years, to replace the estate and gift tax rate schedules, and for

other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. HILL of Montana (for himself, Mr. TALENT, Mrs. CHENOWETH, and Mr.

SCHAFFER) 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 lower the

maximum capital gains rate to 15 percent with respect

to assets held for more than 3 years, to replace the

estate and gift tax rate schedules, 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 ‘‘American Dream Tax

5 Fairness Equity Act of 1997’’.
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1 SEC. 2. REDUCTION OF MAXIMUM CAPITAL GAINS RATE

2 FOR INDIVIDUALS TO 15 PERCENT WITH RE3 SPECT TO ASSETS HELD FOR MORE THAN 3

4 YEARS.

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

6 Internal Revenue Code of 1986 (relating to tax imposed)

7 is amended to read as follows:

8 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

9 ‘‘(1) IN GENERAL.—If a taxpayer has a net

10 capital gain for any taxable year, then the tax im11 posed by this section shall not exceed the sum of—

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

13 the same manner as if this subsection had not

14 been enacted on the greater of—

15 ‘‘(i) taxable income reduced by the

16 amount of the net capital gain, or

17 ‘‘(ii) the amount of taxable income

18 taxed at a rate below 28 percent,

19 ‘‘(B) 15 percent of qualified 3-year capital

20 gain (to the extent not taken into account

21 under subparagraph (A)), and

22 ‘‘(C) 28 percent of the excess (if any) of

23 taxable income over the amounts taken into ac24 count under subparagraphs (A) and (B).
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1 ‘‘(2) QUALIFIED 3-YEAR CAPITAL GAIN.—For

2 purposes of this subsection, the term ‘qualified 3-

3 year capital gain’ means the lesser of—

4 ‘‘(A) net long-term capital gain for the tax5 able year, determined by substituting ‘held for

6 more than 3 years’ for ‘held for more than 1

7 year’ in paragraphs (3) and (4) of section 1222,

8 or

9 ‘‘(B) net capital gain for such taxable year.

10 ‘‘(3) COORDINATION WITH INVESTMENT IN11 COME ELECTION.—For purposes of this subsection,

12 the net capital gain for any taxable year shall be re13 duced (but not below zero) by the amount which the

14 taxpayer elects to take into account as investment

15 income for the taxable year under section

16 163(d)(4)(B)(iii).’’

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

18 this section shall apply to taxable years beginning after

19 December 31, 1997.

20 SEC. 2. REPLACEMENT OF ESTATE AND GIFT TAX RATE

21 SCHEDULES.

22 (a) ESTATE TAX RATE SCHEDULE REPLACED BY 15

23 AND 28 PERCENT TAX RATES.—

24 (1) IN GENERAL.—Subsection (b) of section

25 2001 of the Internal Revenue Code of 1986 (relating
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1 to imposition and rate of tax) is amended to read as

2 follows:

3 ‘‘(b) COMPUTATION OF TAX.—The amount imposed

4 by this section shall be—

5 ‘‘(1) 15 percent of all qualified 3-year capital

6 gain (within the meaning of section 1(h)) included in

7 the taxable estate, and

8 ‘‘(2) 28 percent of all capital gain (other than

9 such qualified 3-year capital gain) included in the

10 taxable estate,

11 determined as if all property included in the taxable estate

12 had been sold for its fair market value on the date of the

13 decedent’s death (or the date applicable with respect to

14 the valuation of such property under section 2032, if

15 any).’’

16 (2) REPEAL OF RATE SCHEDULE.—Section

17 2001 of such Code is amended by striking sub18 section (c).

19 (3) CONFORMING AMENDMENTS.—Section 2001

20 of such Code is amended by striking subsections (d)

21 and (e).

22 (b) REDUCTION OF GIFT TAX.—Subsection (a) of

23 section 2502 of such Code is amended to read as follows:

24 ‘‘(a) COMPUTATION OF TAX.—The tax imposed by

25 section 2501 for each calendar year shall be—
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1 ‘‘(1) 15 percent of all qualified 3-year capital

2 gain (as defined in section 1(h)) contained in the

3 taxable gifts made during such year, and

4 ‘‘(2) 28 percent of all capital gain (other than

5 such qualified 3-year capital gain) contained in such

6 taxable gifts,

7 determined, with respect to each such gift, as if all prop8 erty contained in such gift had been sold by the grantor

9 for its fair market value on the date of such gift.’’

10 (c) UNIFIED CREDIT AGAINST ESTATE AND GIFT

11 TAXES.—

12 (1) UNIFIED CREDIT AGAINST ESTATE TAX.—

13 Subsection (a) of section 2010 of such Code (relat14 ing to unified credit against estate tax) is amended

15 to read as follows:

16 ‘‘(a) ALLOWANCE OF CREDIT.—

17 ‘‘(1) GENERAL RULE.—A credit of the amount

18 determined under paragraph (2) shall be allowed to

19 the estate of every decedent against the tax imposed

20 by section 2001.

21 ‘‘(2) AMOUNT OF CREDIT.—The amount deter22 mined under this paragraph is the amount equal to

23 the sum of—

24 ‘‘(A) the tax imposed under section

25 2001(b)(2) (to the extent that such tax is im-
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1 posed on so much of the imputed capital gains

2 amount as does not exceed $600,000), and

3 ‘‘(B) the tax imposed under section

4 2001(b)(1) on the excess (if any) of—

5 ‘‘(i) so much of the imputed capital

6 gains amount as does not exceed $600,000,

7 over

8 ‘‘(ii) the portion of the imputed cap9 ital gains amount taken into account under

10 subparagraph (A).

11 ‘‘(3) IMPUTED CAPITAL GAINS AMOUNT.—For

12 purposes of this subsection, the term ‘imputed cap13 ital gains amount’ means the aggregate amount to

14 which the rates of section 2001(b) apply.

15 ‘‘(4) COORDINATION WITH UNIFIED CREDIT

16 USED TO REDUCE GIFT TAX.—

17 ‘‘(A) IN GENERAL.—The $600,000

18 amounts referred to in subparagraphs (A) and

19 (B)(i) of paragraph (2) shall each be reduced

20 by the cumulative gift tax credit amount.

21 ‘‘(B) CUMULATIVE GIFT TAX CREDIT

22 AMOUNT.—For purposes of this paragraph, the

23 term ‘cumulative gift tax credit amount’ means

24 the sum of the capital gains gift amounts (as

25 defined in section 2505(a)(3)) with respect to
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1 which a credit was allowed under section 2505

2 (relating to unified credit against gift tax), de3 termined by not taking into account any gift in4 cluded in the taxable estate.’’

5 (2) UNIFIED CREDIT AGAINST GIFT TAX.—Sub6 section (a) of section 2505 of such Code (relating to

7 unified credit against gift tax) is amended to read

8 as follows:–

9 ‘‘(a) ALLOWANCE OF CREDIT.—

10 ‘‘(1) GENERAL RULE.—In the case of a citizen

11 or resident of the United States, there shall be al12 lowed as a credit against the tax imposed by section

13 2501 for each calendar year an amount equal to—

14 ‘‘(A) the amount determined under para15 graph (2), reduced by––

16 ‘‘(B) the sum of the amounts allowable as

17 a credit to the individual under this section for

18 all preceding calendar periods with respect to

19 gifts made before the gift tax change date, as

20 determined under paragraph (4).

21 ‘‘(2) AMOUNT.—The amount determined under

22 this paragraph is the amount equal to the sum of—

23 ‘‘(A) the tax imposed under section

24 2502(a)(2) for the year on the capital gains gift

25 amount, and
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1 ‘‘(B) the tax imposed under section

2 2502(a)(1) for the year on the excess (if any)

3 of—

4 ‘‘(i) the capital gains gift amount for

5 the year, over

6 ‘‘(ii) the portion of such capital gains

7 gift amount taken into account under sub8 paragraph (A).

9 ‘‘(3) CAPITAL GAINS GIFT AMOUNT.—For pur10 poses of this subsection, the term ‘capital gains gift

11 amount’ means, for any year, the amount to which

12 the rates of section 2502(b) apply with respect to

13 such year, but not more than the excess (if any)

14 of—

15 ‘‘(A) $600,000, over

16 ‘‘(B) the sum of the capital gains gift

17 amounts for all preceding years (determined

18 without taking into account any gift made be19 fore the date of the enactment of this para20 graph).

21 ‘‘(4) GIFTS MADE BEFORE GIFT TAX CHANGE

22 DATE.—

23 ‘‘(A) IN GENERAL.—For purposes of para24 graph (1)(B), the amount allowable as a credit

25 to an individual under this section for a preced-
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1 ing calendar period with respect to any gift

2 made before the gift tax change date shall be

3 the amount which would have been allowable to

4 the individual as a credit under this section

5 with respect to such gift—

6 ‘‘(i) if this section and section

7 2001(b), as in effect on the day after the

8 date of the enactment of this paragraph,

9 had been in effect for the year of such gift

10 and all preceding calendar periods, and

11 ‘‘(ii) without regard to the parenthet12 ical contained in paragraph (3)(B).

13 ‘‘(B) GIFT MADE BEFORE GIFT TAX

14 CHANGE DATE.—For purposes of this section,

15 the term ‘gift made before gift tax change date’

16 means a gift made before the date of the enact17 ment of this paragraph (other than a gift taken

18 into account under subsection (b)).’’

19 (3) CONFORMING AMENDMENT.—Subsection (b)

20 of section 2502 of such Code is amended by adding

21 at the end the following new flush sentence:

22 ‘‘In connection with the gift tax imposed by this chapter

23 for the calendar year in which this sentence is enacted

24 with respect to gifts made on or after the date of such

25 enactment, the term ‘preceding calendar period’ shall in-
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1 clude the portion of such calendar year which precedes

2 such date of enactment.’’

3 (d) ESTATES OF NONRESIDENT ALIENS.—

4 (1) RATE CHANGE.—

5 (A) IN GENERAL.—Subsection (b) of sec6 tion 2101 of such Code (relating to tax imposed

7 on estates of nonresident aliens) is amended to

8 read as follows:

9 ‘‘(b) COMPUTATION OF TAX.—The tax imposed by

10 this section shall be the amount equal to the tax computed

11 under section 2001(b) (determined as if section 2001 ap12 plied to the decedent).’’

13 (B) CONFORMING AMENDMENT.—Section

14 2101 of such Code is amended by striking sub15 section (c).

16 (2) CREDITS AGAINST TAX.—Section 2102 of

17 such Code (relating to credits against estate tax for

18 nonresidents not citizens) is amended by adding at

19 the end the following new subsection:

20 ‘‘(d) ADJUSTMENT OF AMOUNTS TO REFLECT UNI21 FIED CREDIT CHANGES.—The Secretary shall by regula22 tion adjust the dollar amounts provided in this section to

23 reflect, in a proportionate manner, the changes made to

24 sections 2010 and 2505 on the date of the enactment of

25 this subsection.’’
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1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to estates of decedents dying on

3 or after, and gifts made on or after, the date of the enact4 ment of this Act.

5 SEC. 3. TAX ON TRUSTS WHEN GRANTOR DIES.

6 (a) IN GENERAL.—Subpart A of part I of subchapter

7 J of chapter 1 of the Internal Revenue Code of 1986 is

8 amended by adding at the end the following new section:

9 ‘‘SEC. 646. ASSETS MARKED TO MARKET WHEN GRANTOR

10 DIES.

11 ‘‘(a) IN GENERAL.—For purposes of this title, on the

12 death of any individual who has contributed property to

13 a trust—

14 ‘‘(1) the trust shall recognize gain or loss as if

15 all property so contributed by the decedent which is

16 contained in the trust were sold for its fair market

17 value on the date of such death,

18 ‘‘(2) such gain or loss shall be taken into ac19 count for the taxable year of the trust in which such

20 death occurs, and

21 ‘‘(3) proper adjustment shall be made in the

22 amount of any gain or loss subsequently realized for

23 gain or loss taken into account under paragraph (2).

24 ‘‘(b) PROPERTY CONTRIBUTED BY PARTNERSHIP OR

25 CORPORATION.—For purposes of this section, the Sec-
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1 retary may by regulations provide that property contrib2 uted to a trust by a partnership or corporation shall be

3 treated as contributed by the individual having a greater

4 than 50 percent interest in such partnership or owning

5 more than 50 percent of the stock of such corporation.

6 For purposes of this subsection, rules similar to the rules

7 of section 318 (relating to constructive ownership of stock)

8 shall apply.

9 ‘‘(c) PROPORTIONATE APPLICATION.—If any prop10 erty was contributed to a trust partially by the decedent

11 and partially by another person, the portion of such prop12 erty so contributed by the decedent shall be treated as a

13 separate asset for purposes of this title and subsection (a)

14 shall apply to such portion.

15 ‘‘(d) COORDINATION WITH INCLUSION IN TAXABLE

16 ESTATE.—This section shall not apply to the portion of

17 any trust which is included in the taxable estate of any

18 individual.’’

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

20 for subpart A of part I of subchapter J of chapter 1 of

21 such Code is amended by adding at the end the following

22 new item:

‘‘Sec. 646. Assets marked to market when grantor dies.’’

23 (c) EFFECTIVE DATE.—

24 (1) IN GENERAL.—Except as provided in para25 graph (2), the amendments made by this section
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1 shall apply with respect to decedents dying on or

2 after the date of the enactment of this Act.

3 (2) TRUSTS CONTAINING PROPERTY CONTRIB4 UTED BY DECEDENTS DYING BEFORE DATE OF EN5 ACTMENT.—For purposes of section 646 of the In6 ternal Revenue Code of 1986 (as added by sub7 section (b)), any individual dying before the date of

8 the enactment of this Act shall be treated as dying

9 on the date of the enactment of this Act.

Æ