CONGRESSIONAL RECORD - HOUSE

CAPITAL GAINS TAX LOOPHOLE

Mr. O'HARA of Michigan. Mr.

Speaker, I ask unanimous consent to extend my remarks at this point in the

RECORD and to include extraneous

matter.

The SPEAKER. Is there objection

to the request of the gentleman from

Michigan?

There was no objection.

Mr. O'HARA of Michigan. Mr.

Speaker, the distinguished senior Senator from the State of Pennsylvania has

given a great deal of thought and consideration to our Federal tax structure.

He has, among other things, interested

himself in the treatment accorded capital gains under the Internal Revenue

Code of 1954 and in the types of transaction which gives rise to capital gains

under the code.

This is a serious matter in which we

as legislators are deeply interested because of the effect upon Federal revenues and upon business activity. The

senior Senator from Pennsylvania commented upon some aspects of this situation on the 12th day of August, and his

remarks appear at page 15590 of the

CONGRESSIONAL RECORD for that day. I

commend his statement to the attention

of every Member of the House and particularly call your attention to the

schedule incorporated in his remarks

showing the average tax savings accruing to capital gains taxpayers in various income brackets during 1956, and

I include, under unanimous consent, this

schedule at this point in the RECORD:

The capital gains tax (who benefits-how much-Treasury loss)

Total number Percentage Average Revenue loss

of taxable of total tax saved to Treasury

Adjusted gross income of taxpayer returns filed returns on returns because of

(excluding reporting reporting capital information capital capital gains returns) gains gains I claims

Under $3,000 ----------------------------------- 12, 161,320 2.4 $81 $24, 042, 000

$3,000, under $5,000 ------------------------------------- 14,808, 530 3.3 108 52, 370,000

$5,000, under $7,000 ------------------------------------- 10.455, 601 4.2 127 55,994,000 $7,000, under $10,000 ------------------------------ 5, 723, 893 7.6 189 82,269, 220

$10,000, under $15,000 ----------------------------- 1,018, 975 17. 6 342 115,354, 590

$18,000, under $20,000 ------------------------------ 47, 449 30. 7 566 86, 762, 550

$20,000, under $25,000 ----------------------------------- 234, 745 37. 0 805 69, 970, 300

$25,000, under $50,000 ------------------------------- 346, 246 46. 2 1,843 294, 855, 440

$50,000, under $100,000 --------------------------------- 89, 095 60. 4 8,125 417, 371,100

$100,000, under $150,000 --------------------------------- 14, 057 72. 6 28, 117 287, 013, 500

$150,000, under $200,000 --------------------------------- 3,843 77. 3 53, 571 159, 213, 860

$200,000, under $500,000 --------------------------------- 4,031 82. 0 122, 431 404, 513 920

$500,000, under $1,000,000 -------------------------------- 593 84.1 404,848 202, 019, 400

$1,000,000 or more -------------------------------------- 268 81.3 1, 453, 438 316, 849, 500

Total --------------------------------------------- -------------- ---------------------------- 2, 58, 599, 380

I NOTE.-Tax savings computed at 3. the bracket rate, to a maximum of 25 percent. Bracket rate assumed to be

the rate for the average taxable income per return at that adjusted gross income level, including 90 percent of excluded

capital gains.

Source: Statistics of income, 1956-"Individual Income Tax Returns," U.S. Treasury, Internal Revenue Service.

After studying the remarks of the

senior Senator from Pennsylvania, it

occurred to me that further light might

be thrown on the subject if the number

and total savings of capital gains taxpayers were shown by income category

to demonstrate the impact of the special

treatment of capital gains under the Internal Revenue Code of 1954. Only

slightly over 5 percent of the taxable returns filed by individuals for the year

1956 reported any capital gains at all.

About 32 percent of the capital gains returns were filed by persons having adjusted gross income of less than $5,000.

About 3 percent of the capital gains returns were filed by persons having adjusted gross income in excess of $50,000.

Yet, only 3 percent of the total tax savings realized as a result of the special

treatment given capital gains was enjoyed by the 32 percent of capital gains

taxpayers who had incomes of less than

$5,000, while almost 70 percent of the

total tax savings realized as a result of

the special treatment of capital gains was

enjoyed by the 3 percent of capital gains

taxpayers who had incomes in excess of

$50,000.

This record, when considered in conjuction with the facts established by the

learned senior Senator from Pennsylvania, indicates that a complete consideration of the tax treatment of gains upon

the sale or transfer of capital assets

should be quickly undertaken. It is my

sincere hope that the Committee on

Ways and Means will give this matter its

serious and prompt attention when it

begins hearings on tax revision this fall. Under unanimous consent, I include

the table above referred to, showing the

number and percentage of individual returns filed which indicate capital transactions and the reduction in income tax

resulting therefrom, by income categories, at this point in the RECORD:

Who benefits, and how much-the capital

gains tax loophole, 1956

Total number of taxable returns filed ------ 46, 21, 646

Number showing capital gains ------------ 2,466,281

Percent of taxable returns showing capital gains ------------------------------------- . 3

Distribution of returns showing capital gains

(taxable returns only)

Returns show- Reduction in in.

ing gains come tax

Income level

Per- PerNum- cent Amount cent

her of (thousands) of

total total

Under $5,000 ------- 782, 495 31.7 $76,412,000 3.0

$5,000 to $10,000 --- 875, 479 35. 5 138, 263,220 5.4

$10,000 to $20,000___- 490, 395 19. 9 202, 117,140 7.0

$20,000 to $50,000_--- 246,894 10. 0 304,825,740 14.2

$50,000 and over .... 71,018 2.9 1,786,981, 280 69.5

Total ------ 2,466,281 100. 0 2, 568, 599, 380 100. 0

EBER BROS. WINE & LIQUOR CORP.-

.VETO MESSAGE FROM THE PRESIDENT OF THE UNITED STATES

(H. DOC. NO. 228)

The SPEAKER laid before the House

the following veto message from the

President of the United States:

To the House of Representatives:

I return herewith, without my approval, H.R. 2717, "For the relief of Eber

Bros. Wine & Liquor Corp."

The bill would permit income tax refund claims for this corporation's taxable years 1947 and 1948 to be presently

determined even though applicable

statutes of limitations have long since

expired.

This special relief should be granted,

it is said, because a January 29, 1951, decision of the Tax Court-holding that a

certain form of income should be treated

as a capital gain rather than as ordinary

income-came at a time when the statutory 3-year period for claiming a refund

had only 6 months to run on this taxpayer's 1948 return and only 11 months

to run on its 1947 return. Despite the

remaining time it did have in each case,

this taxpayer failed to file for a refund

on this new basis until July 14, 1952-

a year and a half after the Tax Court decision. Nor did the taxpayer take any

other timely action to protect its position. The 1947 and 1948 claims were

disallowed because not presented in time.

A judicial decision modifying or overturning a previously held view of the law

is not an unusual circumstance in the development of our tax law. Taxpayers

and their counsel often must take action

or otherwise adjust because of such

changes.

The effect of the Tax Court decision

here involved was to change the tax

treatment of a certain kind of income.

This, as always, meant different things

to different taxpayers according to their

individual circumstances, but the point is

that as of the date of the decision everybody's rights-no matter how they may

have varied-were fixed. This bill now

seeks to alter those rights for one taxpayer.

The record on this bill discloses no

valid reason for such special relief. The

taxpayer simply failed to protect his

position within the time allowed him by

law. The very purpose of the statute of

limitations is to achieve finality in tax

administration. Special relief in this

case would undermine this purpose,

would discriminate against other taxpayers, and would create an undesirable

precedent.

For these reasons I am unable to approve this bill.

DWIGHT D. EISENHOWER.

THE WHITE HOUSE, September 14, 1959.

The SPEAKER. The objections of

the President will be spread at large

upon the Journal, and, without objection, the bill and message will be referred

to the Committee on the Judiciary and

ordered to be printed.

There was no objection.

1959 19697