I
105TH CONGRESS
2D SESSION
H. R. 4454
To amend the Internal Revenue Code of 1986 to simplify the individual
capital gains tax for all individuals and to provide modest reductions
in the capital gains tax for most individuals.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 6, 1998
Mr. COYNE (for himself, Mr. RANGEL, Mr. STARK, Mr. MATSUI, Mrs. KEN-
NELLY of Connecticut, Mr. MCDERMOTT, Mr. LEWIS of Georgia, Mr.
NEAL of Massachusetts, and Mr. BECERRA) 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 simplify
the individual capital gains tax for all individuals and
to provide modest reductions in the capital gains tax
for most individuals.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Capital Gains Tax Simplification Act of 1998’’.
(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. REDUCTION AND SIMPLIFICATION OF CAPITAL
GAINS TAX.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 (relating to treatment of capital gains) is amended by
adding at the end the following new section:
‘‘SEC. 1203. CAPITAL GAINS DEDUCTION.
‘‘If for any taxable year a taxpayer other than a cor-
poration has a net capital gain, 38 percent of such gain
shall be a deduction from gross income.’’
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the follow-
ing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’
(2) Subsection (d) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the follow-
ing new paragraph:
‘‘(3) the deduction allowed by section 1203.’’
(c) MINIMUM TAX TREATMENT.—
(1) Paragraph (1) of section 56(b) is amended
by adding at the end the following new subpara-
graph:
‘‘(G) CAPITAL GAIN DEDUCTION NOT AP-
PLICABLE.—Section 1203 shall not apply.’’
(2) Subsection (b) of section 55 is amended by
striking paragraph (3) and inserting the following
new paragraphs:
‘‘(3) MAXIMUM TAX ON NET CAPITAL GAIN.—
The amount of tax determined under the first sen-
tence of paragraph (1)(A)(i) shall not exceed the
sum of—
‘‘(A) the amount determined under such
first sentence computed at the rates and in the
same manner as if this paragraph had not been
enacted on the taxable excess reduced by the
net capital gain, plus
‘‘(B) a tax on the net capital gain deter-
mined by using the regular tax capital gains tax
rates.
‘‘(4) REGULAR TAX ON NET CAPITAL GAIN.—
For purposes of paragraph (3), the tax on the net
capital gain determined by using the regular tax
capital gains tax rates is the excess of—
‘‘(A) the tax that would be computed
under section 1 if net capital gain were deter-
mined with the adjustments under this part,
over
‘‘(B) the tax that would be so computed
under section 1 if the taxable income were re-
duced by 62 percent of the net capital gain as
so determined.’’
(d) REPEAL OF TAX PREFERENCE FOR EXCLUSION
ON SMALL BUSINESS STOCK.—
(1) Subsection (a) of section 57 is amended by
striking paragraph (7).
(2) Subclause (II) of section 53(d)(1)(B)(ii) is
amended by striking ‘‘, (5), and (7)’’ and inserting
‘‘and (5)’’.
(e) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by
inserting after paragraph (11) the following new
paragraph:
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from
the sale or exchange of a collectible shall be
treated as a short-term capital gain or loss (as
the case may be), without regard to the period
such asset was held. The preceding sentence
shall apply only to the extent the gain or loss
is taken into account in computing taxable in-
come.
‘‘(B) TREATMENT OF CERTAIN SALES OF
INTERESTS IN PARTNERSHIPS, ETC.—For pur-
poses of subparagraph (A), any gain from the
sale or exchange of an interest in a partnership,
S corporation, or trust which is attributable to
unrealized appreciation in the value of collect-
ibles held by such entity shall be treated as gain
from the sale or exchange of a collectible. Rules
similar to the rules of section 751(f) shall apply
for purposes of the preceding sentence.
‘‘(C) COLLECTIBLE.—For purposes of this
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in
section 408(m) without regard to paragraph (3)
thereof).’’
(2) 
CHARITABLE
DEDUCTION
NOT
AF-
FECTED.—
(A) Paragraph (1) of section 170(e) is
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘For purposes of this
paragraph, section 1222 shall be applied with-
out regard to paragraph (12) thereof (relating
to special rule for collectibles).’’
(B) Clause (iv) of section 170(b)(1)(C) is
amended by inserting before the period at the
end thereof the following: ‘‘and section 1222
shall be applied without regard to paragraph
(12) thereof (relating to special rule for collect-
ibles)’’.
(f) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection
(h).
(2) Subparagraph (E) of section 163(d)(4) is
amended to read as follows:
‘‘(E) COORDINATION WITH CAPITAL GAINS
DEDUCTION.—The net capital gain taken into
account under section 1203 for any taxable
year shall be reduced (but not below zero) by
the amount which the taxpayer takes into ac-
count as investment income under subpara-
graph (B)(iii) for such year.’’
(3) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘62 per-
cent (100 percent in the case of a corporation) of
the amount of gain’’.
(4) Subparagraph (B) of section 172(d)(2) is
amended to read as follows:
‘‘(B) the exclusion under section 1202 and
the deduction under section 1203 shall not be
allowed.’’
(5) The last sentence of section 453A(c)(3) is
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net
capital gain under section 1201 or the deduction
under section 1203 (whichever is appropriate) shall
be taken into account.’’
(6)(A) Section 641(d)(2)(A) is amended by
striking ‘‘Except as provided in section 1(h), the’’
and inserting ‘‘The’’.
(B) Section 641(d)(2)(C) is amended by insert-
ing after clause (iii) the following new clause:
‘‘(iv) The deduction under section
1203.’’
(7) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or ex-
change of capital assets held for more than 1 year,
proper adjustment shall be made for any exclusion
allowable under section 1202 and any deduction al-
lowable under section 1203 to the estate or trust. In
the case of a trust, the deduction allowed by this
subsection shall be subject to section 681 (relating
to unrelated business income).’’
(8) Section 642 is amended by adding at the
end the following new subsection:
‘‘(j) CAPITAL GAINS DEDUCTION.—The deduction
under section 1203 to an estate or trust shall be computed
by excluding the portion (if any) of the gains for the tax-
able year which is includible by the income beneficiaries
under sections 652 and 662 (relating to inclusions of
amounts in gross income of beneficiaries of trusts) as gain
derived from the sale or exchange of capital assets.’’
(9) The last sentence of section 643(a)(3) is
amended to read as follows: ‘‘The exclusion under
section 1202 and the deduction under section 1203
shall not be taken into account.’’
(10) Subparagraph (C) of section 643(a)(6) is
amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and
by inserting before the period ‘‘, and (ii) the deduc-
tion under section 1203 (relating to capital gains de-
duction) shall not be taken into account’’.
(11) Paragraph (4) of section 691(c) is amend-
ed by striking ‘‘1(h),’’ and by inserting ‘‘1203,’’
after ‘‘1202,’’.
(12) The second sentence of paragraph (2) of
section 871(a) is amended by striking ‘‘section
1202’’ and inserting ‘‘sections 1202 and 1203’’.
(13)(A) Paragraph (2) of section 904(b) is
amended by striking subparagraphs (A) and (C), by
redesignating subparagraph (B) as subparagraph
(A), and by inserting after subparagraph (A) (as so
redesignated) the following new subparagraph:
‘‘(B) OTHER TAXPAYERS.—In the case of
a taxpayer other than a corporation, taxable in-
come from sources outside the United States
shall include gain from the sale or exchange of
capital assets only to the extent of foreign
source capital gain net income.’’
(B) Subparagraph (A) of section 904(b)(2), as
so redesignated, is amended—
(i) by striking all that precedes clause (i)
and inserting the following:
‘‘(A) CORPORATIONS.—In the case of a
corporation—’’, and
(ii) by striking in clause (i) ‘‘in lieu of ap-
plying subparagraph (A),’’.
(C) Paragraph (3) of section 904(b) is amended
by striking subparagraphs (D) and (E) and inserting
the following new subparagraph:
‘‘(D) RATE DIFFERENTIAL PORTION.—The
rate differential portion of foreign source net
capital gain, net capital gain, or the excess of
net capital gain from sources within the United
States over net capital gain, as the case may
be, is the same proportion of such amount as
the excess of the highest rate of tax specified in
section 11(b) over the alternative rate of tax
under section 1201(a) bears to the highest rate
of tax specified in section 11(b).’’
(14) Paragraph (1) of section 1402(i) is amend-
ed by inserting ‘‘, and the deduction provided by sec-
tion 1203 shall not apply’’ before the period at the
end thereof.
(15) Paragraph (1) of section 1445(e) is
amended by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(16)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) of such Code ap-
plies’’, and
(ii) by striking ‘‘20 percent’’ and inserting
‘‘24.5 percent’’.
(g) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter P of chapter 1 is amended by
adding at the end the following new item:
‘‘Sec. 1203. Capital gains deduction.’’
(h) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years beginning
after December 31, 1998.
(2) WITHHOLDING.—The amendments made by
subsection (f)(15) shall apply only to amounts paid
after December 31, 1998.
(3) REPEAL OF ELECTION.—Section 311 of the
Taxpayer Relief Act of 1997 is amended by striking
subsection (e).
(4) COORDINATION
WITH
PRIOR
TRANSITION
RULE.—Any amount treated as long-term capital
gain by reason of paragraph (3) of section 1122(h)
of the Tax Reform Act of 1986 shall not be taken
into account for purposes of applying section 1203
of the Internal Revenue Code of 1986 (as added by
this section).
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