Democratic U.S. Rep. Harry Mitchell of Arizona partnered with Republican Rep. Christopher Shays of Connecticut to co-sponsor a bill that would reduce capital gains and estate taxes.

The measure is intended to benefit an expanding class of residents, such as middle-class families, baby boomers, homeowners and small business owners, Mitchell said during a teleconference Wednesday.

The legislation would permanently reduce the capital gains tax to 15 percent. In 2003, Congress temporarily cut the capital gains rate from 20 percent to 15 percent, though the cut is scheduled to expire in 2011. If it is allowed to expire, Americans would experience a 33 percent increase in the capital gains tax, Mitchell said.

“In 1983, less than 20 percent of Americans owned stock. Now, between IRAs, 401(k)s and educational savings accounts, more than half of A m e r i c a n s own stock. And after a decade and a half of low interest rates, more than two-thirds of Americans are now homeowners,” he said.

High capital gains taxes present significant barriers for people who want to sell stock or houses, Mitchell said. “This is bad for sellers, bad for buyers and bad for our economy.”

The bill also would permanently reduce the estate tax exemption. The current exemption of $2 million is set to shrink to $1 million in 2011.

Mitchell and Shays’ bill would set the exemption, indexed for inflation, at $3.75 million beginning in 2010. It raises the exemption to $5 million by 2015 and then indexes it for inflation after that. Also, it would eliminate the flat 55 percent tax rate and create segmented estate tax rate brackets: zero taxes for estates valued up to $5 million, 15 percent for estates valued $5 million to $25 million, and 30 percent for estates valued above that.

“Right now, if you don’t want to pay the tax, or at least don’t want your estate to pay it, you need to die in the year 2010,” Shays said.

The loss in revenue to the national treasury caused by the tax cuts would be an estimated $332 billion over 10 years, Mitchell said. Neither Mitchell nor Shays have identified ways to offset the loss, but Mitchell said the cuts are reasonable considering the war in Iraq costs $124 billion a year.

“There is room in the budget process to work on this,” said Mitchell, a freshman who represents Arizona’s 5th Congressional District, which takes in Scottsdale, Tempe, Fountain Hills and Ahwatukee Foothills.

Mitchell acknowledged that tax cuts generally are regarded as Republican fodder. Still, he thinks the bill will appeal to at least a segment of Democrats, but he has yet to receive any substantial feedback about it from members of his own party.