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
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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