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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Income Tax Fairness
Act of 1999’’.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Working people provide about 65 percent of
Federal revenue through social security taxes on
their earnings and through income taxes on their
earnings and employment-related retirement income.
(2) By contrast, income taxes on unearned in-
come produce only about 11 percent of total Federal
revenue.
(3) Practically all wage and salary income is re-
quired to be reported on personal income tax returns
and, except for those receiving earned income cred-
its, is generally fully taxed at regular income tax
rates.
(4) By contrast, unearned income (such as cap-
ital gains, dividends, interest, and rental income) is
favored by a large number of special tax provisions,
so that (A) some unearned income is taxed at lower
rates, (B) some unearned income is tax-deferred and
the income taxes need not be paid until many years
after the income is accrued, and (C) large amounts
of unearned income will never be taxed at all under
present law.
(5) Working people are subject to social secu-
rity taxes as well as income taxes, and for over 90
percent of the population the combined tax on
earned income—30.3 percent or 43.3 percent—is
higher than the income tax rates of 15 percent and
28 percent that apply to unearned income.
(6) The market value of all stocks traded on
the New York Stock Exchange and the over-the-
counter market (NASDAQ) was about 3 trillion dol-
lars in early 1989. In early 1999 it is more than 13
trillion dollars. Thus there appears to be roughly 10
trillion dollars of realized and unrealized capital
gains on these stocks, plus additional large amounts
of capital gains on foreign stocks, real estate, and
other assets.
(7) Large amounts of capital gains will never be
taxed under present law, because (A) capital gains
are not taxed until the asset is sold or transferred,
and (B) unrealized capital gains are never taxed if
the owner holds the asset for life and bequeaths it
to his or her heirs, even if the heirs sell it imme-
diately after death.
(8) Owners of nonresidential real estate are al-
lowed depreciation deductions for the full cost of
buildings over 39 years, even though the buildings
when built are intended to stand, and usually do
stand, for 100 years or more.
SEC. 3. REDUCTION IN INDIVIDUAL INCOME TAX RATES.
(a) IN GENERAL.—Each of the tables contained in
subsections (a), (b), (c), (d), and (e) of section 1 of the
Internal Revenue Code of 1986 is amended—
(1) by striking ‘‘15%’’ and inserting ‘‘12%’’;
(2) by striking ‘‘28%’’ and inserting ‘‘25%’’;
(3) by striking ‘‘31%’’ and inserting ‘‘28%’’;
(4) by striking ‘‘36%’’ and inserting ‘‘33%’’;
and
(5) 
by 
striking 
‘‘39.6%’’ 
and 
inserting
‘‘36.6%’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1999.
(c) SECTION 15 NOT TO APPLY.—The amendment
made by subsection (a) shall not be treated as a change
in the rate of a tax imposed by chapter 1 of the Internal
Revenue Code of 1986 for purposes of section 15 of such
Code.
SEC. 4. REPEAL OF INCREASE IN BASIS OF PROPERTY AC-
QUIRED FROM A DECEDENT.
(a) IN GENERAL.—Section 1014 of the Internal Rev-
enue Code of 1986 (relating to basis of property acquired
from a decedent) is hereby repealed.
(b) BASIS TO BE DETERMINED UNDER RULES AP-
PLICABLE TO GIFTS.—Section 1015 of such Code (relat-
ing to basis of property acquired by gifts and transfers
in trusts) is amended by adding at the end the following
new subsection:
‘‘(f) PROPERTY ACQUIRED FROM OR PASSING FROM
A DECEDENT.—
‘‘(1) IN
GENERAL.—Carryover basis property
shall be treated for purposes of subsection (a) as ac-
quired by gift for purposes of this section.
‘‘(2) CARRYOVER BASIS PROPERTY DEFINED.—
For purposes of this section, the term ‘carryover
basis property’ means property acquired from or
passed from a decedent dying after December 31,
1999.
‘‘(3) PROPERTY
ACQUIRED
FROM
A
DECE-
DENT.—Section 1014(b) (as in effect on the day be-
fore the date of the enactment of the Income Tax
Fairness Act of 1999) shall apply for purposes of
whether property is considered to have been acquired
from or to have passed from the decedent.
‘‘(4) INCREASE
IN
BASIS
FOR
FAMILY
FARM
AND CLOSELY HELD BUSINESS PROPERTY AND FOR
ESTATE
TAX
PAID.—The basis of any carryover
basis property is the sum of—
‘‘(A) the basis determined under sub-
section (a);
‘‘(B) the family farm adjustment for such
property;
‘‘(C) the closely held business adjustment
for such property; and
‘‘(D) the death tax adjustment for such
property.
‘‘(5) FAMILY FARM ADJUSTMENT.—
‘‘(A) IN GENERAL.—In the case of carry-
over basis property which is qualified real prop-
erty (as defined in section 2032A(b)), the fam-
ily farm adjustment is the portion of the aggre-
gate family farm adjustment which is allocated
to the property pursuant to this section.
‘‘(B) ADJUSTMENT NOT TO APPLY IF ES-
TATE TAX BENEFIT IS OR WOULD BE RECAP-
TURED.—The basis of any property shall be de-
termined without regard to this paragraph if
any additional estate tax is or has been imposed
by section 2032A(c) with respect to such prop-
erty (or would have been so imposed if section
2032A had been elected with respect to such
property).
‘‘(C) AGGREGATE FAMILY FARM ADJUST-
MENT.—In the case of any estate, the aggre-
gate family farm adjustment is the amount (if
any) by which—
‘‘(i) $1,000,000, exceeds
‘‘(ii) the aggregate of the initial bases
of all carryover basis property which is
qualified real property (as so defined).
‘‘(6) CLOSELY HELD BUSINESS ADJUSTMENT.—
‘‘(A) IN GENERAL.—In the case of carry-
over basis property which is an interest in a
closely held business (as defined in section
6166(b)), the closely held business adjustment
is the portion of the aggregate closely held busi-
ness adjustment which is allocated to the prop-
erty pursuant to this section.
‘‘(B) AGGREGATE
CLOSELY
HELD
BUSI-
NESS ADJUSTMENT.—In the case of any estate,
the aggregate closely held business adjustment
is the amount (if any) by which—
‘‘(i) $1,000,000, exceeds
‘‘(ii) the sum of—
‘‘(I) the aggregate of the initial
bases of all carryover basis property
which is an interest in closely held
business (as so defined), plus
‘‘(II) the aggregate family farm
adjustment under paragraph (3).
‘‘(7) DEATH TAX ADJUSTMENT.—
‘‘(A) IN GENERAL.—The death tax adjust-
ment for any carryover basis property is the
portion of the aggregate death tax adjustment
which is allocated to the property pursuant to
this section.
‘‘(B) LIMITATION.—The death tax adjust-
ment for any property shall not exceed—
‘‘(i) the net appreciation of such prop-
erty, multiplied by
‘‘(ii) the Federal marginal estate tax
rate.
‘‘(C) NET
APPRECIATION.—For purposes
of this paragraph, the net appreciation in value
of any property is the amount by which—
‘‘(i) the fair market value of such
property, exceeds
‘‘(ii) the basis determined under sub-
section (a) increased by the adjustments
described in subparagraphs (B) and (C) of
paragraph (3) for such property.
‘‘(D) AGGREGATE
DEATH
TAX
ADJUST-
MENT.—In the case of any estate—
‘‘(i) IN
GENERAL.—The aggregate
death tax adjustment is the product of—
‘‘(I) the aggregate net apprecia-
tion of all properties which have net
appreciation, and
‘‘(II) the Federal marginal estate
tax rate.
‘‘(ii) LIMITATION.—The amount taken
into account under clause (i)(I) shall not
exceed the taxable estate.
‘‘(iii) FEDERAL
MARGINAL
ESTATE
TAX RATE.—The term ‘Federal marginal
estate tax rate’ means the highest rate in
the rate schedule set forth in section
2001(c)—
‘‘(I) which is used in determining
the 
tentative 
tax 
under 
section
2001(b)(1) with respect to the estate
of the decedent, and
‘‘(II) the amount subject to
which is at least $50,000.
In no event shall the Federal marginal es-
tate tax rate be less than 30 percent.
‘‘(8) ALLOCATION RULES.—The executor shall
allocate the adjustments under this subsection
among the properties on the return of the tax im-
posed by chapter 11.’’.
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
striking the item relating to section 1014.
(2) The heading of section 1015 of such Code
is amended to read as follows:
‘‘SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM
A DECEDENT, OR TRANSFERRED IN TRUST.’’.
(3) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
striking the item relating to section 1015 and insert-
ing the following new item:
‘‘Sec. 1015. Basis of property acquired by gift, from a decedent,
or transferred in trust.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to decedents dying after December
31, 1999.
SEC. 5. INCREASE IN COST RECOVERY PERIOD FROM 39
YEARS TO 100 YEARS FOR NONRESIDENTIAL
REAL PROPERTY.
(a) IN GENERAL.—The table in section 168(c) of
such Code (relating to applicable recovery period) is
amended by striking ‘‘39 years’’ and inserting ‘‘100
years’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to property placed in service by
the taxpayer after December 31, 1999.
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