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out as an inducement to my colleagues that there would be a turnover in some of these assets, and that money would be redeployed into more productive-

Mr. JONSSON. I think that is a realistic assumption.

Senator ARMSTRONG. I am sure you don't have any way to measure that.

Mr. JONSSON. Certainly on the part of independent businesses, closely held firms.

Mr. BLOOMFIELD. Mr. Chairman, if I could interject.
Senator ARMSTRONG. Yes. Please do.

Mr. BLOOMFIELD. The gentleman made reference to Dr. Feldstein's recent study. Dr. Feldstein looked at what happens to reported net long-term capital gains, and he found that the reported net long-term capital gains more than doubled between the year 1977, the year before the tax changed, and 1979. So that is a doubling of net long-term capital gains. And, ironically, with regard to the argument that some people may—

Senator ARMSTRONG. Now are you saying that that is related to the change in the capital gains tax rate?

Mr. BLOOMFIELD. Yes.

Senator ARMSTRONG. I thought that was the point you were making earlier, and I want to nail that down. I believe that you are correct about that, and I want to thank you for raising that issue.

Mr. BLOOMFIELD. But those are very specific numbers that he actually found and are included in his study.

Senator ARMSTRONG. Mr. Bloomfield, could we talk a little more about that? You make the observation on page 3 of your statement, "Tax policy is a primary vehicle through which Federal policies can dramatically affect capital formation." If you were going to characterize in a few words the general attitude of Federal tax policy or the general effect of Federal policy towards capital formation in recent years, what would you say it was? Has it been generally favorable the last 20 years to the formation of capital or generally unfavorable?

Mr. BLOOMFIELD. I would submit until the changes that started with the capital gains tax cut in 1978, our tax system was biased against saving and investment, more so than most other major industrial countries. And you can focus on specific tax issues, whether it be through double taxation of corporate profits, or capital gains taxation, or savings incentives such as IRAS and Keoghs. What we have done since 1978 is incrementally eliminated some of those biases in our tax system against saving investment. But you will find, for example, if you look at the international comparisons on table 1, in my written testimony that with regard to capital gains, we still tax capital gains much more harshly than our competitors. And tax policy I think is one way that you can affect capital formation. It is a lot easier to do it through tax policy than through changing people's attitude toward work and saving. Although I think things can be done in that regard, too. In short, tax system is biased against saving investment. We penalize saving and work.

Senator ARMSTRONG. Your organization, as I understand it, exists primarily to support those policies that will encourage capital formation, the investment of capital in productive enterprises. From

that perspective, let me ask you the lock in question, the same question that I put a moment ago to Mr. Jonsson. Is it your view that indexing this group of capital assets that are referred to, indexing the basis, would in fact cause some of those assets to be sold off, and the proceeds reinvested in more productive assets? In other words, would it improve the overall efficiency of the economy?

Mr. BLOOMFIELD. I think it would. I think we have found that with a substantial reduction in capital gains taxes in 1978, most of that additional revenue that I mentioned, which are not my numbers-those are official Treasury numbers-much of that additional revenue in 1979, 1980 and 1981 came from the unlocking.

Now essentially what your proposal does is to further reduce the capital gains tax burden for a taxpayer. And I made the comment in my statement that even though we are fighting and perhaps winning the battle of inflation, we still will have moderate rates of inflation. Let me just very quickly give you an example which illustrates that even with moderate levels of inflation the tax burden goes up tremendously. Assume an asset costs $100 and the sales price is $125. The tax rate is 20 percent on capital gains. Assume a 6 percent inflation rate. In the example I gave you, if an investor holds that asset one year before he sells it, his tax rate will not be the statutory one of 20 percent but it will be 26 percent. After 2 years, his effective capital gains tax rate will be 39 percent; after 3 years, 71 percent. You can see how you very quickly return to the confiscatory tax rates that existed before the 1978 capital gains tax cut. And the unlocking that I made reference to which resulted in the revenue gains in 1979 and 1980 will be restored.

Senator ARMSTRONG. Well I am very grateful for your observations, and I appreciate so much the appearance of all of the members of the panel. Mr. Bloomfield, before we move on-and I must do so because we have a lengthy list of witnesses-I just want to observe, in passing, that while it is not the subject of this hearing at all, I share your enthusiasm for the changes in the holding period and the marginal rate reduction. Some people have the idea somehow that because we had the tax cuts that that task is over and that it will be another generation before we come back to it. And I sure hope that is not the case. Thank you very much.

S. 1579-CHARITABLE DEDUCTION FOR MILEAGE

Mr. ARMSTRONG. The next bill on todays hearing agenda is S. 1579, Charitable Deduction for Mileage legislation.

We are now pleased to welcome a panel consisting of Sandra Crawford, director of public policy, the Association of Junior Leagues, from New York; Mr. Joseph Miller, assistant director of the American Legon; and Mr. John Chromy, a member of the board of directors of Volunteer, the National Center for Citizen Involvement, in Washington, D.C. These panelists are here to testify on the subject of S. 1579, the Charitable Deduction for Mileage, or, as my colleague, Representative Mikulski, pointed out, "The Good Samaritan Mileage Deduction bill." Miss Crawford, would you begin please? We are very pleased to have you with us and are looking forward to your testimony.

[The prepared statement of Senator Armstrong follows:]

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STATEMENT Of Senator ARMSTRONG

Is the government making volunteerism a luxury that few Americans can afford? The answer, I regret to say, is yes.

I have introduced Good Samaritan legislation to reverse this policy.

The facts are indisputable. Though social needs are greater than ever, fewer and fewer Americans are financially able to deliver meals to shut-ins, visit the sick, take Scouts on camping trips, drive a cancer-stricken child to daily treatments, or help conduct the local Special Olympics.

This decline is at least partly the fault of federal tax policy which prevents proper reimbursement for volunteer costs. Although costs of owning and operating a car exceed 24 cents a mile, volunteers can deduct from their taxes only nine cents for each volunteer mile driven, or about one-third of the actual costs.

The result? Americans can no longer just volunteer; they have to pay to volunteer.

The Good Samaritan Volunteer Mileage Bill I have just introduced will correct this problem. It is simple. Volunteers would be able to deduct the same mileage costs as businessmen and government workers, who use cars in their work-20 cents a mile.

The justice of this bill is clear. Consider the following cases:

A state volunteer director attends a week-long volunteer convention in Florida. As long as most of the day is spent in volunteer meetings, the trip-airfare, meals, lodging, sightseeing, etc.-is fully deductible. When the director returns, and resumes work driving about the state coordinating volunteer activities, only nine cents a mile is deductible.

A Salvation Army volunteer who comforts the sick can deduct only nine cents a mile for driving to the hospital. Yet a salesman calling on that same hospital to sell medical supplies not only earns a salary but deducts 20 cents a mile from his federal tax return.

A Red Cross volunteer reporting to a disaster shelter during a flood is allowed by the federal government to deduct only nine cents a mile to get there. Yet a paid employee of the Federal Emergency Management Agency is reimbursed 20 cents a mile to drive to the same shelter.

Neighbors band together to establish neighborhood citizen watches to patrol their streets. They can deduct only nine cents a mile, but a security guard hired to partrol the same neighborhood can deduct 20 cents a mile.

The chairman of the Denver chapter of the American Red Cross each year drives more than 2,300 volunteer miles. Though he is allowed a deduction of only nine cents a mile, the actual cost for owning and running his car exceeds 25 cents per mile.

More than 92 million Americans volunteer their time, services, skills and cars to help the needy, the victims of natural disasters, the homeless, the sick, the imprisoned, the homebound. The total value of these services exceed $64 billion, according to the Gallup Organization.

These volunteers are essential to our national well-being. Without them, there is a real question about whether our less fortunate could even survive. Neighbors helping neighbors is an American tradition; it is something that the federal government should encourage, not tax.

But volunteerism is becoming a luxury that too many Americans can no longer afford because federal policy is horribly out of date.

The volunteer mileage deduction became law in 1958. Then the deduction was seven cents a mile, gasoline sold for 29 cents a gallon and oil was 15 cents a quart. Today gasoline costs upwards of $1.29, and oil exceeds a $1 a quart-increases of more than 300 percent and 500 percent.

And what can volunteers deduct for their mileage?

Only nine cents a mile, just a 28 percent increase in 25 years.

It is no surprise, then, that volunteer leaders report their frustration in trying to recruit and retain volunteers and their cars.

The Junior League of Denver reports a sharp drop in school volunteers, especially low income urban areas where mothers must drive crosstown to reach their childrens' schools.

The Director of the Colorado Office of Volunteerism reports that three seniors programs are threatened because the low mileage deduction allowed by the IRS makes it impossible for seniors to fit volunteer work and expense into their limited budgets.

that perspective, let me ask you the lock in question, the same question that I put a moment ago to Mr. Jonsson. Is it your view that indexing this group of capital assets that are referred to, indexing the basis, would in fact cause some of those assets to be sold off, and the proceeds reinvested in more productive assets? In other words, would it improve the overall efficiency of the economy?

Mr. BLOOMFIELD. I think it would. I think we have found that with a substantial reduction in capital gains taxes in 1978, most of that additional revenue that I mentioned, which are not my numbers-those are official Treasury numbers-much of that additional revenue in 1979, 1980 and 1981 came from the unlocking.

Now essentially what your proposal does is to further reduce the capital gains tax burden for a taxpayer. And I made the comment in my statement that even though we are fighting and perhaps winning the battle of inflation, we still will have moderate rates of inflation. Let me just very quickly give you an example which illustrates that even with moderate levels of inflation the tax burden goes up tremendously. Assume an asset costs $100 and the sales price is $125. The tax rate is 20 percent on capital gains. Assume a 6 percent inflation rate. In the example I gave you, if an investor holds that asset one year before he sells it, his tax rate will not be the statutory one of 20 percent but it will be 26 percent. After 2 years, his effective capital gains tax rate will be 39 percent; after 3 years, 71 percent. You can see how you very quickly return to the confiscatory tax rates that existed before the 1978 capital gains tax cut. And the unlocking that I made reference to which resulted in the revenue gains in 1979 and 1980 will be restored.

Senator ARMSTRONG. Well I am very grateful for your observations, and I appreciate so much the appearance of all of the members of the panel. Mr. Bloomfield, before we move on-and I must do so because we have a lengthy list of witnesses-I just want to observe, in passing, that while it is not the subject of this hearing at all, I share your enthusiasm for the changes in the holding period and the marginal rate reduction. Some people have the idea somehow that because we had the tax cuts that that task is over and that it will be another generation before we come back to it. And I sure hope that is not the case. Thank you very much.

S. 1579-CHARITABLE DEDUCTION FOR MILEAGE

Mr. ARMSTRONG. The next bill on todays hearing agenda is S. 1579, Charitable Deduction for Mileage legislation.

We are now pleased to welcome a panel consisting of Sandra Crawford, director of public policy, the Association of Junior Leagues, from New York; Mr. Joseph Miller, assistant director of the American Legon; and Mr. John Chromy, a member of the board of directors of Volunteer, the National Center for Citizen Involvement, in Washington, D.C. These panelists are here to testify on the subject of S. 1579, the Charitable Deduction for Mileage, or, as my colleague, Representative Mikulski, pointed out, "The Good Samaritan Mileage Deduction bill." Miss Crawford, would you begin please? We are very pleased to have you with us and are looking forward to your testimony.

[The prepared statement of Senator Armstrong follows:]

STATEMENT OF SENATOR ARMSTRONG

Is the government making volunteerism a luxury that few Americans can afford? The answer, I regret to say, is yes.

I have introduced Good Samaritan legislation to reverse this policy.

The facts are indisputable. Though social needs are greater than ever, fewer and fewer Americans are financially able to deliver meals to shut-ins, visit the sick, take Scouts on camping trips, drive a cancer-stricken child to daily treatments, or help conduct the local Special Olympics.

This decline is at least partly the fault of federal tax policy which prevents proper reimbursement for volunteer costs. Although costs of owning and operating a car exceed 24 cents a mile, volunteers can deduct from their taxes only nine cents for each volunteer mile driven, or about one-third of the actual costs.

The result? Americans can no longer just volunteer; they have to pay to volunteer.

The Good Samaritan Volunteer Mileage Bill I have just introduced will correct this problem. It is simple. Volunteers would be able to deduct the same mileage costs as businessmen and government workers, who use cars in their work-20 cents a mile.

The justice of this bill is clear. Consider the following cases:

A state volunteer director attends a week-long volunteer convention in Florida. As long as most of the day is spent in volunteer meetings, the trip-airfare, meals, lodging, sightseeing, etc.-is fully deductible. When the director returns, and resumes work driving about the state coordinating volunteer activities, only nine cents a mile is deductible.

A Salvation Army volunteer who comforts the sick can deduct only nine cents a mile for driving to the hospital. Yet a salesman calling on that same hospital to sell medical supplies not only earns a salary but deducts 20 cents a mile from his federal tax return.

A Red Cross volunteer reporting to a disaster shelter during a flood is allowed by the federal government to deduct only nine cents a mile to get there. Yet a paid employee of the Federal Emergency Management Agency is reimbursed 20 cents a mile to drive to the same shelter.

Neighbors band together to establish neighborhood citizen watches to patrol their streets. They can deduct only nine cents a mile, but a security guard hired to partrol the same neighborhood can deduct 20 cents a mile.

The chairman of the Denver chapter of the American Red Cross each year drives more than 2,300 volunteer miles. Though he is allowed a deduction of only nine cents a mile, the actual cost for owning and running his car exceeds 25 cents per mile.

More than 92 million Americans volunteer their time, services, skills and cars to help the needy, the victims of natural disasters, the homeless, the sick, the imprisoned, the homebound. The total value of these services exceed $64 billion, according to the Gallup Organization.

These volunteers are essential to our national well-being. Without them, there is a real question about whether our less fortunate could even survive. Neighbors helping neighbors is an American tradition; it is something that the federal government should encourage, not tax.

But volunteerism is becoming a luxury that too many Americans can no longer afford because federal policy is horribly out of date.

The volunteer mileage deduction became law in 1958. Then the deduction was seven cents a mile, gasoline sold for 29 cents a gallon and oil was 15 cents a quart. Today gasoline costs upwards of $1.29, and oil exceeds a $1 a quart-increases of more than 300 percent and 500 percent.

And what can volunteers deduct for their mileage?

Only nine cents a mile, just a 28 percent increase in 25 years.

It is no surprise, then, that volunteer leaders report their frustration in trying to recruit and retain volunteers and their cars.

The Junior League of Denver reports a sharp drop in school volunteers, especially low income urban areas where mothers must drive crosstown to reach their childrens' schools.

The Director of the Colorado Office of Volunteerism reports that three seniors programs are threatened because the low mileage deduction allowed by the IRS makes it impossible for seniors to fit volunteer work and expense into their limited budgets.

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