Economic Growth and Venture Capital Act of 1990

Economic Growth and Venture Capital Act of 1990 - Amends the Internal Revenue Code to reduce the individual and corporate capital gains rate from 34 percent to 15 percent. Reduces such tax to 7.5 percent for low- and middle-income taxpayers.

Requires indexing, based on the gross national product deflator, of the adjusted basis of certain assets (corporate stock and tangible property that is a capital asset of property used in a trade or business) that have been held for more than one year at the time of sale or other transfer, solely for the purpose of determining gain or loss.

Provides for indexing the limitation on capital losses of noncorporate taxpayers.

 
HR 5906 IH
101st CONGRESS
2d Session
 H. R. 5906
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
October 23, 1990
Mr. MCEWEN 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 percent and indexing of certain capital assets,
and for other purposes.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled,
SECTION 1. SHORT TITLE.
  This Act may be cited as the `Economic Growth and Venture Capital Act
  of 1990'.
SEC. 2. REDUCTION IN INDIVIDUAL CAPITAL GAINS RATE.
  (a) GENERAL RULE- Subsection (j) of section 1 of the Internal Revenue Code of
  1986 (relating to maximum capital gains rate) is amended to read as follows:
  `(j) MAXIMUM CAPITAL GAINS RATE-
  `(1) IN GENERAL- If a taxpayer has a net capital gain for any taxable year,
  then the tax imposed 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-percent rate
  applies under the table applicable 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 includes June
  15, 1990, the amount of the net capital gain for purposes of paragraph (1)
  and subsection (g)(1)(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 taxable year after such date.'
  (b) PHASE-OUT OF 15-PERCENT RATE AND PERSONAL EXEMPTIONS NOT TO APPLY TO NET
  CAPITAL GAIN- Subparagraph (A) of section 1(g)(1) of such Code (relating
  to phase-out of 15-percent rate and personal exemptions) is amended by
  inserting `, reduced by the net capital gain' after `taxable income'.
  (c) 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 corporation)' 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. 3. REDUCTION IN CORPORATE CAPITAL GAINS RATE.
  (a) GENERAL RULE- Section 1201 of the Internal Revenue Code of 1986 (relating
  to alternative tax for corporations) 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 corporation 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 reduced 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 includes June
  15, 1990, the amount of the net capital gain for purposes of subsection
  (a) shall not exceed the next capital gain determined by only taking into
  account gains and losses properly taken into account for the portion of
  the taxable year after such date.'
  (b) TECHNICAL AMENDMENTS-
  (1) Clause (iii) of section 852(b)(3)(D) of such Code is amended by striking
  `66 percent' and inserting `85 percent'.
  (2) Paragraphs (1) and (2) of section 1445(e) of such Code are each amended
  by striking `34 percent' and inserting `15 percent'.
SEC. 4. REDUCTION OF MINIMUM TAX RATE ON CAPITAL GAINS.
  Subparagraph (A) of section 55(b)(1) of the Internal Revenue Code of 1986
  (relating to tentative minimum tax) is amended to read as follows:
  `(A) the sum of--
  `(i) 15 percent of the lesser of--
  `(I) the net capital gain (determined with the adjustments provided in this
  part and (to the extent applicable) the limitations of sections 1(j)(2)
  and 1201(b)), or
  `(II) so much of the alternative minimum taxable income for the taxable
  year as exceeds the exemption amount, plus
  `(ii) 20 percent (21 percent in the case of a taxpayer other than a
  corporation) of the amount (if any) by which the excess referred to in
  clause (i)(II) exceeds that net capital gain (as so determined), reduced by'.
SEC. 5. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR LOSS.
  (a) IN GENERAL- Part II of subchapter O of chapter 1 of the Internal
  Revenue Code of 1986 (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 ADJUSTED BASIS- Except as provided
  in paragraph (2), if an indexed asset which has been held for more than
  1 year is sold or otherwise disposed of, for purposes of this title the
  indexed basis of the asset shall be substituted for its adjusted basis.
  `(2) EXCEPTION FOR DEPRECIATION, ETC- The deduction for depreciation,
  depletion, and amortization 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 section, the term `indexed asset'
  means--
  `(A) stock in a corporation, and
  `(B) tangible property (or any interest therein), which is a capital asset
  of property used in the trade or business (as defined in section 1231(b)).
  `(2) CERTAIN PROPERTY EXCLUDED- For purposes of this section, the term
  `indexed asset' does not include--
  `(A) CREDITOR'S INTEREST- Any interest in property which is in the nature
  of a creditor's interest.
  `(B) OPTIONS- Any option or other right to acquire an interest in property.
  `(C) NET LEASE PROPERTY- In the case of a lessor, net lease property
  (within the meaning of subsection (h)(1)).
  `(D) CERTAIN PREFERRED STOCK- Stock which is fixed and preferred as to
  dividends and does not participate in corporate growth to any significant
  extent.
  `(E) STOCK IN CERTAIN CORPORATIONS- Stock in--
  `(i) an S corporation (within the meaning of section 1361),
  `(ii) a    personal holding company (as defined in section 542), and
  `(iii) a foreign corporation.
  `(3) EXCEPTION FOR STOCK IN FOREIGN CORPORATION WHICH IS REGULARLY TRADED
  ON NATIONAL OR REGIONAL EXCHANGE- Clause (iii) of paragraph (2)(E) shall
  not apply to stock in a foreign corporation the stock of which is listed on
  the New York Stock Exchange, the American Stock Exchange, or any domestic
  regional exchange for which quotations are published on a regular basis
  other than--
  `(A) stock of a foreign investment company (within the meaning of section
  1246(b)), and
  `(B) stock in a foreign corporation held by a United States person who
  meets the requirements of section 1248(a)(2).
  `(c) INDEXED BASIS- For purposes of this section--
  `(1) INDEXED BASIS- The indexed basis for any asset is--
  `(A) the adjusted basis of the asset, multiplied by
  `(B) the applicable inflation ratio.
  `(2) APPLICABLE INFLATION RATIO- The applicable inflation ratio for any
  asset is the percentage arrived at by dividing--
  `(A) the gross national product deflator for the calendar quarter in which
  the disposition takes place, by
  `(B) the gross national product deflator for the calendar quarter in which
  the asset was acquired by the taxpayer (or, if later, the calendar quarter
  ending December 31, 1988).
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 inflator 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 applicable inflation ratios for each calendar quarter.
  `(d) SPECIAL RULES- For purposes of this section--
  `(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 property,
  `(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 inflation ratio shall be appropriately
  reduced for calendar months at any time during which the asset was not an
  indexed asset.
  `(B) CERTAIN SHORT SALES- For purposes 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
  substantially identical to the asset. For purposes of the preceding sentence,
  the short sale period begins on the day after the substantially identical
  property is sold and ends on the closing date for the sale.
  `(3) TREATMENT OF CERTAIN DISTRIBUTIONS- 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 ordinary 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 application of section 341(a) (relating to
  collapsible corporations) 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 entity at the close of such month which are indexed
  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 investment trust to value
  its assets more frequently 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) PARTNERSHIP- In the case of a partnership, 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 purposes 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 ADJUSTMENT OR DEPRECIATION ALLOWANCE-
  If any person transfers cash, debt, or any other property to another person
  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 account 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 reason of section
  162 (other than rents and reimbursed amounts with respect to such property)
  is 15 percent or less of the rental income produced by such property.
  `(2) STOCK INCLUDES INTEREST IN COMMON TRUST FUND- The term `stock in a
  corporation' includes any interest in a common trust fund (as defined 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 determining gain
or loss.'
  (c) ADJUSTMENT TO APPLY FOR PURPOSES OF DETERMINING 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 distributions)
  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, 1988, see section
 1022(a)(1).'
SEC. 6. 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 1989, 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 inflation adjustment for any calendar year is the percentage
  (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 1989.
For purposes of this paragraph, the term `gross national product deflator'
has the meaning given such term by section 1022(c)(3).'
SEC. 7. 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 June 15,
  1990, in taxable years ending after such date.
  (b) INDEXING OF LOSS LIMITATION- The amendments made by section 6 of this
  Act shall apply to taxable years beginning after December 31, 1989.