Stephen S. Ziegler - Page 7

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               pay tax under the general rules.  To the extent that                   
               these citizens feel that they are bearing a dispropor-                 
               tionate burden with regard to the costs of government                  
               because of their unwillingness or inability to engage                  
               in tax-oriented investment activity, the tax system                    
               itself is threatened.                                                  
                    Under these circumstances, the committee believes                 
               that decisive action is needed to curb the expansion of                
               tax sheltering and to restore to the tax system the                    
               degree of equity that is a necessary precondition to a                 
               beneficial and widely desired reduction in rates.  So                  
               long as tax shelters are permitted to erode the Federal                
               tax base, a low-rate system can provide neither suffi-                 
               cient revenues, nor sufficient progressivity, to sat-                  
               isfy the general public that tax liability bears a fair                
               relationship to the ability to pay.  In particular, a                  
               provision significantly limiting the use of tax shelter                
               losses is unavoidable if substantial rate reductions                   
               are to be provided to high-income taxpayers without                    
               disproportionately reducing the share of total liabil-                 
               ity under the individual income tax that is borne by                   
               high-income taxpayers as a group.                                      
          S. Rept. 99-313, at 713-714 (1986), 1986-3 C.B. (Vol. 3) 713-714.           
               In the Senate Finance Committee Report, the Senate Committee           
          on Finance focused specifically on the use of rental activities             
          for tax shelter purposes, such as the use by Aldus Green of                 
          rental activities for such purposes.  That report stated in                 
          pertinent part:                                                             
               The extensive use of rental activities for tax shelter                 
               purposes under present law, combined with the reduced                  
               level of personal involvement necessary to conduct such                
               activities, make clear that the effectiveness of the                   
               basic passive loss provision could be seriously compro-                
               mised if material participation were sufficient to                     
               avoid the limitations in the case of rental activities.                
          Id. at 718.                                                                 

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