HR 1390 IH

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.

April 13, 1999

Mr. OWENS introduced the following bill; which was referred to the Committee on Ways and Means

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 Representatives 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 income produce only about 11 percent of total Federal revenue.

(3) Practically all wage and salary income is required to be reported on personal income tax returns and, except for those receiving earned income credits, is generally fully taxed at regular income tax rates.

(4) By contrast, unearned income (such as capital 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 security 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 dollars 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 immediately after death.

(8) Owners of nonresidential real estate are allowed 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 ACQUIRED FROM A DECEDENT.

(a) IN GENERAL- Section 1014 of the Internal Revenue Code of 1986 (relating to basis of property acquired from a decedent) is hereby repealed.

(b) BASIS TO BE DETERMINED UNDER RULES APPLICABLE TO GIFTS- Section 1015 of such Code (relating 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 acquired 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 DECEDENT- Section 1014(b) (as in effect on the day before 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 subsection (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 carryover basis property which is qualified real property (as defined in section 2032A(b)), the family farm adjustment is the portion of the aggregate family farm adjustment which is allocated to the property pursuant to this section.

`(B) ADJUSTMENT NOT TO APPLY IF ESTATE TAX BENEFIT IS OR WOULD BE RECAPTURED- The basis of any property shall be determined without regard to this paragraph if any additional estate tax is or has been imposed by section 2032A(c) with respect to such property (or would have been so imposed if section 2032A had been elected with respect to such property).

`(C) AGGREGATE FAMILY FARM ADJUSTMENT- In the case of any estate, the aggregate 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 carryover 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 business adjustment which is allocated to the property pursuant to this section.

`(B) AGGREGATE CLOSELY HELD BUSINESS 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 adjustment 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 adjustment for any property shall not exceed--

`(i) the net appreciation of such property, 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 subsection (a) increased by the adjustments described in subparagraphs (B) and (C) of paragraph (3) for such property.

`(D) AGGREGATE DEATH TAX ADJUSTMENT- In the case of any estate--

`(i) IN GENERAL- The aggregate death tax adjustment is the product of--

`(I) the aggregate net appreciation 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 estate 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 imposed by chapter 11.'.

(c) CONFORMING AMENDMENTS-

(1) The table of sections for part II of subchapter 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 subchapter O of chapter 1 of such Code is amended by striking the item relating to section 1015 and inserting 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.

END