NEW DIRECTION FOR ENERGY INDEPENDENCE, NATIONAL SECURITY, AND CONSUMER PROTECTION ACT AND THE RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007--Continued -- (Senate - April 03, 2008)
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Mr. KYL. Will the leader yield for a question?
Mr. REID. Yes.
Mr. KYL. Madam President, I served in the House of Representatives with the Senator from Illinois as well. This isn't the first time he has done something unheard of. I was in the minority in the House of Representatives and on a particular vote--I don't know how many were on the floor, but probably about a dozen altogether--Dick Durbin was in the chair as Presiding Officer. He called the vote--a voice vote. It was supposed to be ``the ayes have it,'' but there were a bunch of Republicans on the floor and, in full-throated voice, we said ``no.'' I think one timid soul said ``aye.'' The Presiding Officer said: ``The nos appear to have it, the nos do have it.'' He called the vote, but not the way his side of the aisle wanted it called. Of course, about 10 minutes later, the appropriate number of people were on the floor and the vote was reversed. So this is not the first time the Senator from Illinois has done something unusual and in a way to move the process along and be fair in it. I always have appreciated that.
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AMENDMENT NO. 4407 TO AMENDMENT NO. 4387
Mr. KYL. Mr. President, I ask that amendment No. 4407 be called up. I believe it is at the desk.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:
The Senator from Arizona [Mr. KYL] proposes an amendment numbered 4407 to amendment No. 4387.
Mr. KYL. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To amend the Internal Revenue Code of 1986 to adjust for inflation the dollar limitation for the principal residence gain exclusion)
At the end add the following:
TITLE X--PRINCIPAL RESIDENCE GAIN EXCLUSION
SEC. X01. INFLATION ADJUSTMENT FOR PRINCIPAL RESIDENCE GAIN EXCLUSION DOLLAR LIMITATION.
(a) In General.--Section 121(b) of the Internal Revenue Code of 1986 (relating to limitations) is amended by adding at the end the following new paragraph:
``(4) INFLATION ADJUSTMENT.--In the case of any calendar year after 2008, the dollar amount contained in paragraph (1) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting `calendar year 2007' for `calendar year 1992' in subparagraph (B) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.''.
(b) Conforming Amendment.--So much of subparagraph (A) of section 121(b)(2) of the Internal Revenue Code of 1986 as precedes clause (i) thereof is amended to read as follows:
``(A) LIMITATION FOR CERTAIN JOINT RETURNS.--Paragraph (1) shall be applied by doubling the dollar amount specified in such paragraph if--''.
(c) Effective Date.--The amendments made by this section shall apply to years beginning after December 31, 2008.
Mr. KYL. Mr. President, this amendment is actually very simple, and I think it will be another one of the things that we can do to help promote home ownership and the transfer of property to make it less expensive for people and, frankly, to advance a policy that we should have advanced a long time ago.
Most people know under current law they can exclude $250,000--for a married couple it is $500,000--from the capital gains when they sell their principal residence. In other words, even though you may make $250,000 on the value of your home when you sell it, that is excluded from the capital gains that would otherwise have to be paid.
You are limited by some requirements. You have to live in the home for 2 years. You have to own and occupy the home in 2 of the previous 5 years from the sale. But you are able to exclude from the capital gains $250,000. The problem is, as we found out with the alternative minimum tax, inflation can drive the value of this exclusion down.
So what this amendment does, simply, is index the exclusion for inflation. It is very simple. I cannot imagine it would be controversial. What this would do, of course, is to preserve the value of this deduction that we have all taken advantage of for the future and thereby encourage individuals to purchase a new home. Of course, much of what we are trying to do in this legislation is encourage home ownership but, more than that, encourage people to purchase homes or be able to transact the sale and purchase of a home.
There is another point I want to make, and it is important because some people have been caught in an innocent situation with regard to the foreclosures we are concerned about. People do not buy homes, for the most part, to make money. Now, it is true there were speculators in this red hot housing market and, obviously, we are in no mood to bail out speculators. But most people buy a home to raise their family, and they live in the home.
This exclusion, of course, requires they live in the home for 2 years out of 5 years before the sale. So we are not talking about the situation where brokers would buy a home and then wait a couple months and flip it and sell it and make a big profit. This is for legitimate folks who bought a home to live in and have their family live in it and then sold it.
A large portion of a capital gain on a home is now inflation. That is the hard reality of it. I do not think any of my colleagues believe it should be subject to taxation. Unfortunately, inflation now is around 4 percent. It is growing faster than that. Therefore, for the future I think this is an important amendment as well.
So this amendment protects homeowners from unexpected changes in family status, employment, and health. It would help elderly taxpayers who sell their home and choose to move into less expensive housing during their retirement. Frequently, there is a capital gain on their longtime residence, and it would help them avoid having to pay a capital gains tax.
It clearly simplifies tax administration and record keeping. It would provide people with a much easier situation for acquiring a home.
Mr. President, there are some additional arguments that I could make. Let me cite a couple statistics. Then I am hoping I can perhaps engage some of my colleagues in a discussion to see if there would actually be a need to vote on this amendment or whether we could agree to it.
Let me cite a couple statistics. Usually we do not like to get into this much detail, but I think in this case it makes sense. We have seen housing prices now fall from what some call their bubble highs--the value that was driven up so dramatically, and now it has fallen. Alan Greenspan famously called it the froth in the housing market.
But housing prices are still much higher than they were in 1997. I think about my State. I think about the Senator from California, her State, and those States where property values appreciated, but a lot of that appreciation is now due to inflation.
Here are a couple of interesting stats: The median single-family home price in 1997 was $146,000. A decade later, in 2007, the median home price was $247,200--over $100,000 more in just 10 years. The median home price in California 10 years ago was $186,500, roughly. In February of 2008 it was $409,240--in other words, an increase of $222,750.
So, very clearly, there is a huge inflation factor going into the value of these homes, and we are going to have to pay capital gains tax on that above the $250,000 level if we do not index that amount for inflation.
So I could go on. I think it is so simple. It is a proposition that I would assume would have support from both sides of the aisle. There is nothing political about this, of course, and it would certainly help a lot of our homeowners at a time when we are searching for ways to do exactly that.
So I would pause at this point to see if anyone has any objection or questions about it. I will yield the floor otherwise. But I would love the opportunity to get into a discussion about it and see if there is any concern on anybody's part about it.
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AMENDMENT NO. 4397
Mr. KYL. Mr. President, with respect to Murray-Schumer amendment No. 4397, I make a point of order that the amendment violates section 201(a) of S. Con. Res. 21 of the 110th Congress.
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Mr. KYL. Mr. President, this amendment is very simple. We all know that for individuals, there is a $250,000 exclusion from capital gain when you sell your owner-occupied property. For a couple, it is $500,000. But just like the AMT, it is not indexed for inflation. This amendment indexes that for inflation. That is all it does.
Now, to my colleague saying that home values are going down, here are two statistics. I will cite one for the Nation and one for one State. Ten years ago, the median family priced home was $146,000. Today, it is $247,000. That is $100,000. In California, the median price 10 years ago was $186,000, roughly. It was $409,000 in February of this year, an increase of $222,000. The reality is that inflation has caused a tremendous increase in the value of homes, and when they are sold, people are going to have to pay the capital gains tax above $250,000.
Could we have order?
The PRESIDING OFFICER. The Senate will be in order.
The Senator's time has expired.
Mr. KYL. Well, Mr. President, might I ask unanimous consent for 15 seconds to make the point that the cost of this is $2.1 billion over 5 years, not the number the chairman indicated.