I
107TH CONGRESS
1ST SESSION
H. R. 15
To amend the Internal Revenue Code of 1986 to provide maximum rates
of tax on capital gains of 15 percent for individuals and 28 percent
for corporations and to index the basis of assets of individuals for
purposes of determining gains and losses.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 3, 2001
Mr. DREIER (for himself, Ms. MCCARTHY of Missouri, Mr. ENGLISH, Mr.
DEUTSCH, and Mr. SESSIONS) 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
maximum rates of tax on capital gains of 15 percent
for individuals and 28 percent for corporations and to
index the basis of assets of individuals for purposes
of determining gains and losses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Capital Gains Tax Reduction Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. 15 PERCENT MAXIMUM CAPITAL GAINS RATE FOR
INDIVIDUALS.
(a) IN GENERAL.—Subsection (h) of section 1 (relat-
ing 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, the tax imposed by
this section for such taxable year 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 taxable income reduced by the
net capital gain,
‘‘(B) 7.5 percent of so much of the tax-
payer’s net capital gain (or, if less, taxable in-
come) as does not exceed the excess (if any)
of—
‘‘(i) the amount of taxable income
which would (without regard to this para-
graph) be taxed at a rate of 15 percent or
less, over
‘‘(ii) the amount on which tax is de-
termined under subparagraph (A), plus
‘‘(C) 15 percent of the taxpayer’s net cap-
ital gain (or, if less, taxable income) in excess
of the amount of capital gain on which tax is
determined under subparagraph (B).
‘‘(2) NET CAPITAL GAIN TAKEN INTO ACCOUNT
AS INVESTMENT INCOME.—For purposes of this sub-
section, the net capital gain for any taxable year
shall be reduced (but not below zero) by the amount
which the taxpayer elects to take into account as in-
vestment income under section 163(d)(4)(B)(iii).’’
(b) MINIMUM TAX.—
(1) IN GENERAL.—Subparagraph (A) of section
55(b)(1) is amended by redesignating clauses (ii)
and (iii) as clauses (iii) and (iv), respectively, and by
inserting after clause (i) the following new clause:
‘‘(ii) MAXIMUM RATE OF TAX ON NET
CAPITAL
GAIN.—The amount determined
under the first sentence of clause (i) shall
not exceed the sum of—
‘‘(I) 
the 
amount 
determined
under such first sentence computed at
the rates and in the same manner as
if this clause had not been enacted on
the taxable excess reduced by the net
capital gain, plus
‘‘(II) a tax of 15 percent of the
lesser of the net capital gain or the
taxable excess.’’
(2) CONFORMING AMENDMENT.—Clause (iii) of
section 55(a)(1)(A) (as redesignated by paragraph
(1)) is amended by striking ‘‘clause (i)’’ and insert-
ing ‘‘this subparagraph’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 1202 (relating to 50-percent exclu-
sion for gain from certain small business stock) is
hereby repealed.
(2)(A) Subsection (a) of section 57 is amended
by striking paragraph (7).
(B) Subclause (II) of section 53(d)(1)(B)(ii) is
amended by striking ‘‘, (5), and (7)’’ and inserting
‘‘and (5)’’.
(3) 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 ‘‘50 percent (80 percent in the case of a
corporation) of the amount of gain’’.
(4) Paragraph (2) of section 172(d) is amended
to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation, the amount
deductible on account of losses from sales or ex-
changes of capital assets shall not exceed the
amount includible on account of gains from sales or
exchanges of capital assets.’’
(5) Paragraph (4) of section 642(c) is amended
by striking the first sentence.
(6) Paragraph (3) of section 643(a) is amended
by striking the last sentence.
(7) Paragraph (4) of section 691(c) is amended
by striking ‘‘1202,’’.
(8) The second sentence of section 871(a)(2) is
amended by striking ‘‘such gains and losses shall be
determined without regard to section 1202 and’’.
(9) Subsection (a) of section 1044 is amended
by striking the last sentence.
(10) Paragraph (1) of section 1445(e) is
amended by striking ‘‘28 percent’’ and inserting ‘‘15
percent’’.
(3)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended by striking ‘‘34 percent’’
and inserting ‘‘28 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936 is
amended by striking ‘‘34 percent’’ and inserting ‘‘28
percent’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years ending after December
31, 2000.
(2) WITHHOLDING.—The amendment made by
subsection (b)(2) shall apply to amounts paid after
the date of the enactment of this Act.
(d) TRANSITIONAL RULE.—
(1) IN GENERAL.—In the case of any taxable
year ending after December 31, 2000, and beginning
on or before such date, paragraph (2) of section
1201(a) of the Internal Revenue Code of 1986 (as
amended by this section) shall be applied as if it
read as follows:
‘‘(2) the sum of—
‘‘(A) a tax of 28 percent of the lesser of—
‘‘(i) the net capital gain for the tax-
able year, or
‘‘(ii) the net capital gain taking into
account only gain or loss properly taken
into account for the portion of the taxable
year after December 31, 2000, plus
‘‘(B) a tax of 35 percent of the excess of—
‘‘(i) the net capital gain for the tax-
able year, over
‘‘(ii) the amount of net capital gain
taken into account under subparagraph
(A).’’
(2) SPECIAL RULE FOR PASS-THRU ENTITIES.—
(A) IN GENERAL.—In applying paragraph
(1) with respect to any pass-thru entity, the de-
termination of when gains and losses are prop-
erly taken into account shall be made at the en-
tity level.
(B) PASS-THRU
ENTITY
DEFINED.—For
purposes of subparagraph (A), the term ‘‘pass-
thru entity’’ means—
(i) a regulated investment company,
(ii) a real estate investment trust,
(iii) an S corporation,
(iv) a partnership,
(v) an estate or trust, and
(vi) a common trust fund.
SEC. 4. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF
DETERMINING GAIN OR LOSS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 (relating to basis rules of general application) is
amended by inserting after section 1021 the following new
section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Solely for purposes of determining
gain or loss on the sale or other disposition by a tax-
payer (other than a corporation) of an indexed asset
which has been held for more than 3 years, the in-
dexed basis of the asset shall be substituted for its
adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deductions for depreciation, depletion, and am-
ortization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) common stock in a C corporation
(other than a foreign corporation), and
‘‘(B) tangible property,
which is a capital asset or property used in the trade
or business (as defined in section 1231(b)).
‘‘(2) STOCK
IN
CERTAIN
FOREIGN
CORPORA-
TIONS INCLUDED.—For purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘indexed
asset’ includes common stock in a foreign cor-
poration which is regularly traded on an estab-
lished securities market.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to—
‘‘(i) stock of a foreign investment
company (within the meaning of section
1246(b)),
‘‘(ii) stock in a passive foreign invest-
ment company (as defined in section
1296),
‘‘(iii) stock in a foreign corporation
held by a United States person who meets
the requirements of section 1248(a)(2),
and