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 per-
cent and indexing of certain capital assets, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. REDUCTION IN INDIVIDUAL CAPITAL GAINS
RATE.
(a) GENERAL RULE.—Subsection (h) of section 1 of
the Internal Revenue Code of 1986 (relating to maximum
capital gains rate) is amended to read as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
‘‘(1) IN GENERAL.—If a taxpayer has a net
capital gain for any taxable year, then the tax im-
posed by this section shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the taxable income reduced by
the net capital gain, plus
‘‘(B) a tax equal to the sum of—
‘‘(i) 7.5 percent of so much of the net
capital gain as does not exceed—
‘‘(I) the maximum amount of
taxable income to which the 15-per-
cent rate applies under the table ap-
plicable to the taxpayer, reduced by
‘‘(II) the taxable income to which
subparagraph (A) applies, plus
‘‘(ii) 15 percent of the net capital gain
in excess of the net capital gain to which
clause (i) applies.
‘‘(2) TRANSITIONAL RULE.—In the case of a
taxable year which begins before January 1, 1994,
and ends after December 31, 1993, the amount of
the net capital gain for purposes of paragraph (1)
shall not exceed the net capital gain determined by
only taking into account gains and losses properly
taken into account for the portion of the taxable
year after December 31, 1993.’’
(b) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 170(e) of such
Code is amended by striking ‘‘the amount of gain’’
in the material following subparagraph (B)(ii) and
inserting ‘‘13⁄28 (19⁄34 in the case of a corporation)
of the amount of gain’’.
(2)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) of such Code is amended by striking
‘‘28 percent (34 percent in the case of a corpora-
tion)’’ and inserting ‘‘15 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended by striking ‘‘28 percent (34 percent in the
case of a corporation)’’ and inserting ‘‘15 percent’’.
SEC. 2. REDUCTION IN CORPORATE CAPITAL GAINS RATE.
(a) GENERAL RULE.—Section 1201 of the Internal
Revenue Code of 1986 (relating to alternative tax for cor-
porations) is amended by redesignating subsection (b) as
subsection (c), and by striking subsection (a) and inserting
the following:
‘‘(a) GENERAL RULE.—If for any taxable year a cor-
poration has a net capital gain, then, in lieu of the tax
imposed by section 11, 511, or 831(a) (whichever applies),
there is hereby imposed a tax (if such tax is less than
the tax imposed by such section) which shall consist of
the sum of—
‘‘(1) a tax computed on the taxable income re-
duced by the net capital gain, at the same rates and
in the same manner as if this subsection had not
been enacted, plus
‘‘(2) a tax of 15 percent of the net capital gain.
‘‘(b) TRANSITIONAL RULE.—In the case of a taxable
year which begins before January 1, 1994, and ends after
December 31, 1993, the amount of the net capital gain
for purposes of subsection (a) shall not exceed the net cap-
ital gain determined by only taking into account gains and
losses properly taken into account for the portion of the
taxable year after December 31, 1993.’’
(b) TECHNICAL AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) of such
Code is amended by striking ‘‘66 percent’’ and in-
serting ‘‘85 percent’’.
(2) Paragraphs (1) and (2) of section 1445(e)
of such Code are each amended by striking ‘‘34 per-
cent’’ and inserting ‘‘15 percent’’.
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1993).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
first revision thereof).
‘‘(4) SECRETARY
TO
PUBLISH
TABLES.—The
Secretary shall publish tables specifying the applica-
ble inflation ratios for each calendar quarter.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(3) TREATMENT
OF
CERTAIN
DISTRIBU-
TIONS.—A distribution with respect to stock in a
corporation which is not a dividend shall be treated
as a disposition.
‘‘(4) SECTION
CANNOT
INCREASE
ORDINARY
LOSS.—To the extent that (but for this paragraph)
this section would create or increase a net ordinary
loss to which section 1231(a)(2) applies or an ordi-
nary loss to which any other provision of this title
applies, such provision shall not apply. The taxpayer
shall be treated as having a long-term capital loss in
an amount equal to the amount of the ordinary loss
to which the preceding sentence applies.
‘‘(5) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION
OF
SUBSECTION
(a)(1)
WITH RESPECT TO THE TAXPAYER.—If there has
been a prior application of subsection (a)(1) to an
asset while such asset was held by the taxpayer, the
date of acquisition of such asset by the taxpayer
shall be treated as not earlier than the date of the
most recent such prior application.
‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli-
cation of section 341(a) (relating to collapsible cor-
porations) shall be determined without regard to this
section.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(3) SUBCHAPTER
S
CORPORATIONS.—In the
case of an electing small business corporation, the
adjustment under subsection (a) at the corporate
level shall be passed through to the shareholders.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT OR DEPRECIATION ALLOWANCE.—If any person
transfers cash, debt, or any other property to another per-
son and the principal purpose of such transfer is—
‘‘(1) to secure or increase an adjustment under
subsection (a), or
‘‘(2) to increase (by reason of an adjustment
under subsection (a)) a deduction for depreciation,
depletion, or amortization,
the Secretary may disallow part or all of such adjustment
or increase.
‘‘(h) DEFINITIONS.—For purposes of this section—
‘‘(1) NET
LEASE
PROPERTY
DEFINED.—The
term ‘net lease property’ means leased real property
where—
‘‘(A) the term of the lease (taking into ac-
count options to renew) was 50 percent or more
of the useful life of the property, and
‘‘(B) for the period of the lease, the sum
of the deductions with respect to such property
which are allowable to the lessor solely by rea-
son of section 162 (other than rents and reim-
bursed amounts with respect to such property)
is 15 percent or less of the rental income pro-
duced by such property.
‘‘(2) STOCK INCLUDES INTEREST IN COMMON
TRUST FUND.—The term ‘stock in a corporation’ in-
cludes any interest in a common trust fund (as de-
fined in section 584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part II of subchapter O of such chapter 1 of such Code
is amended by inserting after the item relating to section
1021 the following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determin-
ing gain or loss.’’
(c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE-
TERMINING EARNINGS AND PROFITS.—Subsection (f) of
section 312 of such Code (relating to effect on earnings
and profits of gain or loss and of receipt of tax-free dis-
tributions) is amended by adding at the end thereof the
following new paragraph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
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).’’.
SEC. 5. INDEXING OF LIMITATION ON CAPITAL LOSSES OF
INDIVIDUALS.
Section 1211 of the Internal Revenue Code of 1986
(relating to limitation on capital losses) is amended by
adding at the end thereof the following new subsection:
‘‘(c) 
INDEXATION
OF
LIMITATION
ON
NONCORPORATE TAXPAYERS.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1993, the
$3,000 and $1,500 amounts under subsection (b)(1)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the applicable inflation adjustment
for the calendar year in which the taxable year
begins.’’
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—
For purposes of paragraph (1), the applicable infla-
tion adjustment for any calendar year is the percent-
age (if any) by which—
‘‘(A) the gross national product deflator
for the last calendar quarter of the preceding
calendar year, exceeds
‘‘(B) the gross national product deflator
for the last calendar quarter of 1992.
For purposes of this paragraph, the term ‘gross na-
tional product deflator’ has the meaning given such
term by section 1022(c)(3).’’
SEC. 6. EFFECTIVE DATES.
(a) IN GENERAL.—Except as provided in subsection
(b), the amendments made by this Act shall apply to sales
or exchanges occurring after December 31, 1993, in tax-
able years ending after such date.
(b) INDEXING OF LOSS LIMITATION.—The amend-
ments made by section 5 of this Act shall apply to taxable
years beginning after December 31, 1993.
Æ
HR 151 IH——2