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Appendix
History of the Legislation
(1) The Treasury Report
In November 1984, the Treasury Department issued a report to
the President entitled “Tax Reform for Fairness, Simplicity, and
Economic Growth”, hereinafter sometimes referred to as the
Treasury Report. In the Treasury Report, the Treasury Department
explained that under then-governing law, all interest expense was
“deductible, either as a business or investment expense or as an
itemized deduction.” The Treasury Report at 83. To
curtail the subsidy implicit in the [then] current law
deduction for interest on debt to finance large amounts of
passive, tax-preferred, investment assets (such as corporate
stock) or extraordinary consumption expenditures (such as
second homes).
the Treasury Department proposed to limit the deductions
individuals could claim for interest expense “to the sum of
mortgage interest on the principal residence of the taxpayer,
passive investment income (including interest income), and $5,000
per return.” Id.
(2) The President’s Proposals
In May 1985, President Reagan issued a report entitled “The
President’s Tax Proposals to the Congress for Fairness, Growth,
and Simplicity”, hereinafter sometimes referred to as the
President’s Proposals. Chapter 13.01 of the President’s
Proposals addressed interest deductions and proposed to subject,
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