I
104TH CONGRESS
1ST SESSION
H. R. 1042
To amend the Internal Revenue Code of 1986 to provide that no capital
gains tax shall apply to individuals.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 24, 1995
Mr. CRANE (for himself, Mr. BLUTE, Mr. MCKEON, and Mr. HANCOCK) intro-
duced 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
that no capital gains tax shall apply to individuals.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. 100-PERCENT CAPITAL GAIN EXCLUSION FOR
INDIVIDUALS.
(a) GENERAL RULE.—Part I of subchapter P of
chapter 1 of the Internal Revenue Code of 1986 (relating
to treatment of capital gains), as amended by subsection
(c)(1), is amended by adding at the end the following new
section:
‘‘SEC. 1202. DEDUCTION FOR CAPITAL GAINS.
‘‘(a) ALLOWANCE OF DEDUCTION.—If for any tax-
able year a taxpayer other than a corporation has a net
capital gain, 100 percent of the amount of the net capital
gain shall be a deduction from gross income.
‘‘(b) ESTATES AND TRUSTS.—In the case of an es-
tate or trust, the deduction under subsection (a) shall be
computed by excluding the portion (if any) of the gains
for the taxable year from sales or exchanges of capital as-
sets which, under sections 652 and 662 (relating to inclu-
sions of amounts in gross income of beneficiaries of
trusts), is includible by the income beneficiaries as gain
derived from the sale or exchange of capital assets.
‘‘(c) TRANSITIONAL RULE.—
‘‘(1) IN GENERAL.—In the case of a taxable
year which includes January 1, 1995—
‘‘(A) the amount taken into account as the
net capital gain under subsection (a) 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 tax-
able year on or after January 1, 1995, and
‘‘(B) if the net capital gain for such year
exceeds the amount taken into account under
subsection (a), the rate of tax imposed by sec-
tion 1 on such excess shall not exceed 28 per-
cent.
‘‘(2) SPECIAL
RULES
FOR
PASS-THRU
ENTI-
TIES.—
‘‘(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.’’
(b) DEDUCTION ALLOWABLE
IN COMPUTING AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) CAPITAL GAINS OF INDIVIDUALS.—The
deduction allowed by section 1202.’’
(c) CONFORMING AMENDMENTS.—
(B) Subparagraph (B) of section 172(d)(4) of
such Code is amended by inserting ‘‘, (2)(B),’’ after
‘‘paragraph (1)’’.
(5)(A) Section 221 of such Code (relating to
cross reference) is amended to read as follows:
‘‘SEC. 221. CROSS REFERENCES.
‘‘(1) For deduction for net capital gain, see section
1202.
‘‘(2) For deductions in respect of a decedent, see
section 691.’’
(B) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by
striking ‘‘reference’’ in the item relating to section
221 and inserting ‘‘references’’.
(6) Paragraph (4) of section 642(c) of such
Code 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 deduction
allowable to the estate or trust under section 1202
(relating to deduction for net capital gain). In the
case of a trust, the deduction allowed by this sub-
section shall be subject to section 681 (relating to
unrelated business income).’’
(7) Paragraph (3) of section 643(a) of such
Code is amended by adding at the end thereof the
following new sentence: ‘‘The deduction under sec-
tion 1202 (relating to deduction for net capital gain)
shall not be taken into account.’’
(8) Paragraph (6)(C) of section 643(a) of such
Code is amended—
(A) by inserting ‘‘(i)’’ before ‘‘there’’, and
(B) by inserting ‘‘, and (ii) the deduction
under section 1202 (relating to deduction for
excess of capital gains over capital losses) shall
not be taken into account’’ before the period at
the end thereof.
(9) Paragraph (4) of section 691(c) of such
Code is amended by striking ‘‘1(h), 1201’’ and in-
serting ‘‘1201, 1202,’’.
(10) The second sentence of paragraph (2) of
section 871(a) of such Code is amended by inserting
‘‘such gains and losses shall be determined without
regard to section 1202 (relating to deduction for net
capital gain) and’’ after ‘‘except that’’.
(11)(A) Subparagraph (B) of section 904(b)(2)
of such Code is amended by striking so much of
such subparagraph as precedes clause (i) and insert-
ing the following:
‘‘(B) SPECIAL RULES WHERE CORPORATE
CAPITAL
RATE
GAIN
DIFFERENTIAL.—In the
case of a corporation, for any taxable year for
which there is a capital gain rate differential—
’’.
(B) Subparagraphs (D) and (E) of section
904(b)(3) are amended to read as follows:
‘‘(D) CAPITAL
GAIN
RATE
DIFFEREN-
TIAL.—There is a capital gain rate differential
for any taxable year if any rate of tax imposed
by section 11, 511, or 831(a) or (b) (whichever
applies) exceeds the alternative rate of tax
under section 1201(a) (determined without re-
gard to the last sentence of section 11(b)(1)).
‘‘(E) RATE DIFFERENTIAL PORTION.—The
rate differential portion of foreign source net
capital gain, net capital, 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—
‘‘(i) the excess of the highest rate of
tax specified in section 11(b)(1) over the
alternative rate of tax under section
1201(a), bears to
‘‘(ii) the highest rate of tax specified
in section 11(b)(1).’’
(12) Subsection (d) of section 1044 of such
Code is amended by striking the last sentence.
(13) Section 1402(i)(1) of such Code is amend-
ed to read as follows:
‘‘(1) IN
GENERAL.—In determining the net
earnings from self-employment of any options dealer
or commodities dealer—
‘‘(A) notwithstanding subsection (a)(3)(A),
there shall not be excluded any gain or loss (in
the normal course of the taxpayer’s activity of
dealing in or trading section 1256 contracts)
from section 1256 contracts or property related
to such contracts, and
‘‘(B) the deduction provided by section
1202 shall not apply.’’
(d) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter P of chapter 1 of such Code is
amended by adding at the end thereof the following new
item:
‘‘Sec. 1202. Deduction for capital gains.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 1994.
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