At a very little cost to the federal government, we could encourage even greater private sector participation and support in the training process.

To assist community and junior colleges in meeting the job training demands of the future, my bill, S. 108, makes three changes in the tax code. To encourage corporations to donate equipment, my bill amends the Internal Revenue Code to increase the charitable contribution deduction which may be taken by a corporation for the donation of eligible equipment. The amount of the deduction is the taxpayer's basis in the donated property plus one-half of the unrealized appreciation of the asset, not to exceed twice basis. Under current law, a corporate donor may only deduct its basis in the property.

This provision mirrors an ERTA provision permitting a corporation to claim a deduction of the same magnitude for the donation of equipment for research or research training to an institution of higher education. My bill expands the ERTA provision by permitting a corporation to donate equipment used for vocational training to two and four year colleges, technical institutes and universities. The equipment must be donated for use in a qualified post-secondary vocational education program as defined by the Higher Education Act of 1965; furthermore, the donee must certify that substantially all of the use of the property will be for training students enrolled in qualified post-secondary vocational education programs. A qualified post-secondary vocational education program is a two-year program in applied mathematics, science or engineering and their related technical fields which directly pertains to the career preparation of students without a baccalaureate or advanced degree. To prevent abuse, the property received by the donee may not be transferred in exchange for other services or property.

My bill also addresses the difficulty educational institutions face in competing with private industry to attract and maintain qualified technical instructors. S. 108 has two provisions designed to enable teaching skills to keep pace with technological growth. First, corporations are eligible to claim a $100 tax credit for employees lent to community and junior colleges to teach vocational training courses. An employer may not claim a credit for more than 5 courses taught by each employee during a taxable year. Eligible courses are those offered in a two-year program in the fields of engineering, mathematics, physical or biological sciences designed to prepare a student to work as a technician or a para-professional. This incentive would encourage industry to contribute needed technical instruction that colleges are currently unable to provide, particularly in highly specialized technologies.

Second, my bill offers employers a tax credit of $100 if they employ a full time vocational education instructor with at least two years of teaching experience. To claim the tax credit, an employer must hire the instructor for not less than three months and not more than one year. If the instructor does not return to his or her teaching position, the corporation cannot claim the credit. This provision is designed to provide employers with a small incentive to hire community college vocational instructors. Not only would these instructors be exposed to the technological needs of the area's employers, their skills would also be upgraded by working with modern equipment. This double benefit enhances the ability of vocational education instructors to teach and place their students.

Although not a comprehensive answer to our skills shortage, I feel my bill would offer immediate and needed assistance to one of our best delivery systems for job training. It would also enhance the cooperation between the business sector and our educational institutions in providing more effective training services.

I thank the Chair for the hearing this morning on my bill, S. 108, and look forward to the testimony of our distinguished witnesses.

Senator ARMSTRONG. Today is the 107th anniversary of Colorado joining the Union. Today is Colorado day. [Applause.]

Let the record of this proceeding reflect that that announcement was well received. And I also would like to announce that we are here for the purpose of holding hearings on a series of tax reform measures which are near and dear to the hearts of the people of Colorado, and so it is a very appropriate day.

I will insert into the record of this proceeding a detailed statement on each of the bills, but they are, just for the record, S. 1600, capital gains indexing; S. 1579, charitable deduction for mileage; S. 1464, exempting the El Pomar Foundation from foundation divestiture requirements; and S. 1549, permitting pension plans and college endowments to invest in all forms of energy exploration

through limited partnerships and not be subject to the unrelated business income tax.

The provisions I think of these bills are well known to the committee. And I will put a statement at length in the record. We have a very distinguished list of witnesses and we are delighted to welcome them here today.

S. 1600-CAPITAL GAINS INDEXING

May I first call on my colleague and old friend, Bill Archer, a Member of the U.S. House of Representatives for, I want to say seven terms, but that may be one too many. Is that correct?

Representative ARCHER. That is correct.

Senator ARMSTRONG. From the State of Texas, one of the foremost authorities on tax law, generally, and on indexing the Tax Code, in particular. We are delighted to welcome you and we are eager to have your statement.

STATEMENT OF HON. WILLIAM ARCHER, U.S. REPRESENTATIVE STATE OF TEXAS

Representative ARCHER. Thank you, Mr. Chairman. At the onset, I would say that we in Texas view the admission of Colorado with some mixed emotions inasmuch as you took a big chunk of the original Republic of Texas within your confines.

Senator ARMSTRONG. Could we strike that out of the record? [Laughter.]

Representative ARCHER. But to get on to the business before the committee this morning. I am pleased to have an opportunity to publicly testify on a subject that has been close to the hearts and activities of both you, Mr. Chairman, and myself over the years, which is the indexation of the cost basis of capital gains. You are the author of Senate bill 1600, and I am the author of a similar bill, H.R. 3651, in the House.

Historically, we might look back a couple of years, and in 1981 the Congress for the first time recognized in public law that inflation erodes the value of the dollars on which tax liabilities are based and index the individual tax rates for individuals in 1981. And I might say, Mr. Chairman, I would like to submit my entire testimony for the record, and I will tend to paraphrase and synthesize to the greatest degree that I can.

Senator ARMSTRONG. We are glad to have your statement in its entirety.

[The prepared written statement of Representative Archer follows:]

Prepared Statement of Congressman Bill Archer

I appreciate the opportunity to appear before this Subcommittee on behalf of legislation which would index the basis of capital assets to the rate of inflation. Senator Armstrong has introduced legislation, S. 1600, which seeks to promote this goal and I am the sponsor of similar House legislation, H.R. 3651.

In 1981 the Congress passed landmark legislation that sought to stimulate economic growth in the United States through a combination of across-the-board income tax rate reductions and reforms designed to encourage investment and savings. Among the most important of these changes was the implementation of a system of indexing for individual tax rate brackets the zero bracket amount and the personal exemption. This represented the first major recognition in Public Law that inflation erodes the value of the dollars on which tax liabilities are based. The Congress stood up and acknowledged to the American people that the automatic tax increases attributable to inflation were unfair to every American taxpayer by allowing their tax burden

as

a percentage of income to increase without an Act of Congress. It also recognized the adverse effect of such a policy on the incentives to both work and save. Indexing which had been used for years to establish wage and price increases in the private sector was declared to be our national policy with regard to the federal individual income tax. It is now an appropriate time to carry on from this historical beginning to fully implement this policy. I urge you to support, at the first available opportunity, legislation establishing capital asset indexing.

I first authored capital asset indexing legislation in 1978. On July 25, 1978, a bipartisan majority of the House Ways and Means Committee adopted my legislation on a 21 to 16 vote. When this legislation was considered on the louse floor as part of the Revenue Act of 1978, a bipartisan coalition voted to keep it in the bill with 249 votes for it and 167 votes against it. This was the first time that any tax indexing proposal had received the affirmative approval of either the Ways and Means Committee or the House as a whole. It was regrettably deleted in the final Conference Report.

Last year, during the Senate floor consideration of the Tax Equity and Fiscal Responsibility Act of 1982, Senator Armstrong offered an amendment to index the value of capital assets subject to the capital gains tax to reflect inflation, beginning in 1985. The Senate adopted the Armstrong Amendment on a 64-32 vote and rejected a motion to reconsider by an almost identical margin. The Senate had now also affirmatively endorsed capital asset Once again, however, this amendment did not survive the House-Senate Conference Committee.

indexing.

Capital gains indexing would be accomplished in both H. R. 3651 and S. 1600 by permitting taxpayers to adjust the basis of certain assets for inflation using the GNP deflator. The inflation

adjustment would be computed by multiplying the taxpayer's adjusted basis for the indexed asset by the applicable inflation factor. This factor is determined by the ratio of the GNP deflator level for the quarter in which the asset was sold to the index level for the quarter of purchase or the last quarter of 1983 if purchased prior to this legislation's enactment.

Indexing would be permitted for both corporate stock and real property. The corporate stock category would specifically exclude: certain preferred stocks which provide for a fixed rate of return with no significant participation in corporate growth; stock in foreign corporations and personal holding companies; and warrants, options and other contract rights with respect to stock. The real property category would require the assets to be capital assets or assets used in a trade or business. Indexing would only apply to assets held for more than one year. This provides uniformity with current capital gains tax treatment and also would exclude ordinary income assets, such as inventory, from indexation.

The inflation adjustment could only be applied to sales, exchanges or other dispositions of property. It would not apply for the purpose of determining depreciation, cost depletion or amortization.