To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.

January 7, 2003

Mr. LINDER (for himself and Mr. PETERSON of Minnesota) introduced the following bill; which was referred to the Committee on Ways and Means

To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Fair Tax Act of 2003'.

(b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Congressional findings.

TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES

Sec. 101. Income taxes repealed.

Sec. 102. Payroll taxes repealed.

Sec. 103. Estate and gift taxes repealed.

Sec. 104. Conforming amendments; effective date.

TITLE II--SALES TAX ENACTED

Sec. 201. Sales tax.

Sec. 202. Conforming and technical amendments.

TITLE III--OTHER MATTERS

Sec. 301. Phase-out of administration of repealed Federal taxes.

Sec. 302. Administration of other Federal taxes.

Sec. 303. Sales tax inclusive Social Security benefits indexation.

SEC. 2. CONGRESSIONAL FINDINGS.

(a) FINDINGS RELATING TO FEDERAL INCOME TAX- Congress finds the Federal income tax--

(1) retards economic growth and has reduced the standard of living of the American public;

(2) impedes the international competitiveness of United States industry;

(3) reduces savings and investment in the United States by taxing income multiple times;

(4) slows the capital formation necessary for real wages to steadily increase;

(5) lowers productivity;

(6) imposes unacceptable and unnecessary administrative and compliance costs on individual and business taxpayers;

(7) is unfair and inequitable;

(8) unnecessarily intrudes upon the privacy and civil rights of United States citizens;

(9) hides the true cost of government by embedding taxes in the costs of everything Americans buy;

(10) is not being complied with at satisfactory levels and therefore raises the tax burden on law abiding citizens; and

(11) impedes upward social mobility.

(b) FINDINGS RELATING TO FEDERAL PAYROLL TAXES- Congress finds further that the Social Security and Medicare payroll taxes and self-employment taxes--

(1) raise the cost of employment;

(2) destroy jobs and cause unemployment; and

(3) have a disproportionately adverse impact on lower income Americans.

(c) FINDINGS RELATING TO FEDERAL ESTATE AND GIFT TAXES- Congress finds further that the Federal estate and gift taxes--

(1) force family businesses and farms to be sold by the family to pay such taxes;

(2) discourage capital formation and entrepreneurship;

(3) foster the continued dominance of large enterprises over small family-owned companies and farms; and

(4) impose unacceptably high tax planning costs on small businesses and farms.

(d) FINDINGS RELATING TO NATIONAL SALES TAX- Congress finds further that a broad-based national sales tax on goods and services purchased for final consumption--

(1) is similar in many respects to the sales and use taxes in place in 45 of the 50 States;

(2) will promote savings and investment;

(3) will promote fairness;

(4) will promote economic growth;

(5) will raise the standard of living;

(6) will increase investment;

(7) will enhance productivity and international competitiveness;

(8) will reduce administrative burdens on the American taxpayer;

(9) will improve upward social mobility; and

(10) will respect the privacy interests and civil rights of taxpayers.

(e) FINDINGS RELATING TO ADMINISTRATION OF NATIONAL SALES TAX- Congress further finds that--

(1) most of the practical experience administering sales taxes is found at the State governmental level;

(2) it is desirable to harmonize Federal and State collection and enforcement efforts to the maximum extent possible;

(3) it is sound tax administration policy to foster administration and collection of the Federal sales tax at the State level in return for a reasonable administration fee to the States; and

(4) businesses that must collect and remit taxes should receive reasonable compensation for the cost of doing so.

(f) FINDINGS RELATING TO REPEAL OF PRESENT FEDERAL TAX SYSTEM- Congress further finds that the 16th amendment to the United States Constitution should be repealed.

TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES

SEC. 101. INCOME TAXES REPEALED.

Subtitle A of title 26 of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes) is repealed.

SEC. 102. PAYROLL TAXES REPEALED.

(a) IN GENERAL- Subtitle C of title 26 of the Internal Revenue Code of 1986 (relating to payroll taxes and withholding of income taxes) is repealed.

(b) FUNDING OF SOCIAL SECURITY- For funding of the Social Security Trust Funds from general revenue, see section 201 of the Social Security Act (42 U.S.C. 401).

SEC. 103. ESTATE AND GIFT TAXES REPEALED.

Subtitle B of title 26 of the Internal Revenue Code of 1986 (relating to estate and gift taxes) is repealed.

SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE.

(a) CONFORMING AMENDMENTS- The Internal Revenue Code of 1986 is amended--

(1) by striking subtitle H (relating to financing of Presidential election campaigns), and

(2) by redesignating--

(A) subtitle D (relating to miscellaneous excise taxes) as subtitle B,

(B) subtitle E (relating to alcohol, tobacco, and certain other excise taxes) as subtitle C,

(C) subtitle F (relating to procedure and administration) as subtitle D,

(D) subtitle G (relating to the Joint Committee on Taxation) as subtitle E,

(E) subtitle I (relating to the Trust Fund Code) as subtitle F,

(F) subtitle J (relating to coal industry health benefits) as subtitle G, and

(G) subtitle K (relating to group health plan portability, access, and renewability requirements) as subtitle H.

(b) Redesignation of 1986 Code-

(1) IN GENERAL- The Internal Revenue Code of 1986 enacted on October 22, 1986, as heretofore, hereby, or hereafter amended, may be cited as the `Internal Revenue Code of 2003'.

(2) REFERENCES IN LAWS, ETC- Except when inappropriate, any reference in any law, Executive order, or other document--

(A) to the Internal Revenue Code of 1986 shall include a reference to the Internal Revenue Code of 2003, and

(B) to the Internal Revenue Code of 2003 shall include a reference to the provisions of law formerly known as the Internal Revenue Code of 1986.

(c) ADDITIONAL AMENDMENTS- For additional conforming amendments, see section 202 of this Act.

(d) EFFECTIVE DATE- Except as otherwise provided in this Act, the amendments made by this Act shall take effect on January 1, 2005.

TITLE II--SALES TAX ENACTED

SEC. 201. SALES TAX.

(a) IN GENERAL- The Internal Revenue Code of 2003 is amended by inserting before subtitle B (as redesignated by section 104(a)(2)(A)) the following new subtitle:

`Subtitle A--Sales Tax

`Sec. 1. Principles of interpretation.

`Sec. 2. Definitions.

`CHAPTER 1. Interpretation; definitions; imposition of tax; etc.

`CHAPTER 2. Credits; refunds.

`CHAPTER 3. Family consumption allowance.

`CHAPTER 4. State and Federal cooperative tax administration.

`CHAPTER 5. Other administrative provisions.

`CHAPTER 6. Collection; appeals; taxpayer rights.

`CHAPTER 7. Special rules.

`CHAPTER 8. Financial intermediation services.

`CHAPTER 9. Additional matters.

`SECTION 1. PRINCIPLES OF INTERPRETATION.

`(a) IN GENERAL- Any court, the Secretary, and any sales tax administering authority shall consider the purposes of this subtitle (as set forth in subsection (b)) as the primary aid in statutory construction.

`(b) PURPOSES- The purposes of this subtitle are as follows:

`(1) To raise revenue needed by the Federal Government in a manner consistent with the other purposes of this subtitle.

`(2) To tax all consumption of goods and services in the United States once, without exception, but only once.

`(3) To prevent double, multiple, or cascading taxation.

`(4) To simplify the tax law and reduce the administration costs of, and the costs of compliance with, the tax law.

`(5) To provide for the administration of the tax law in a manner that respects privacy, due process, individual rights when interacting with the government, the presumption of innocence in criminal proceedings, and the presumption of lawful behavior in civil proceedings.

`(6) To increase the role of State governments in Federal tax administration because of State government expertise in sales tax administration.

`(7) To enhance generally cooperation and coordination among State tax administrators; and to enhance cooperation and coordination among Federal and State tax administrators, consistent with the principle of intergovernmental tax immunity.

`(c) SECONDARY AIDS TO STATUTORY CONSTRUCTION- As a secondary aid in statutory construction, any court, the Secretary, and any sales tax administering authority shall consider--

`(1) the common law canons of statutory construction;

`(2) the meaning and construction of concepts and terms used in the Internal Revenue Code of 1986 as in effect before the effective date of this subtitle; and

`(3) construe any ambiguities in this Act in favor of reserving powers to the States respectively, or to the people.

`SEC. 2. DEFINITIONS AND SPECIAL RULES.

`(a) IN GENERAL- For purposes of this subtitle--

`(1) AFFILIATED FIRMS- A firm is affiliated with another if 1 firm owns 50 percent or more of--

`(A) the voting shares in a corporation, or

`(B) the capital interests of a business firm that is not a corporation.

`(2) CONFORMING STATE SALES TAX- The term `conforming State sales tax' means a sales tax imposed by a State that adopts the same definition of taxable property and services as adopted by this subtitle.

`(3) DESIGNATED COMMERCIAL PRIVATE COURIER SERVICE- The term `designated commercial private courier service' means a firm designated as such by the Secretary or any sales tax administering authority, upon application of the firm, if the firm--

`(A) provides its services to the general public,

`(B) records electronically to its data base kept in the regular course of its business the date on which an item was given to such firm for delivery, and

`(C) has been operating for at least 1 year.

`(4) EDUCATION AND TRAINING- The term `education and training' means tuition for primary, secondary, or postsecondary level education, and job-related training courses. Such term does not include room, board, sports activities, recreational activities, hobbies, games, arts or crafts or cultural activities.

`(5) GROSS PAYMENTS- The term `gross payments' means payments for taxable property or services, including Federal taxes imposed by this title.

`(6) Intangible property-

`(A) IN GENERAL- The term `intangible property' includes copyrights, trademarks, patents, goodwill, financial instruments, securities, commercial paper, debts, notes and bonds, and other property deemed intangible at common law. The Secretary shall, by regulation resolve differences among the provisions of common law of the several States.

`(B) CERTAIN TYPES OF PROPERTY- Such term does not include tangible personal property (or rents or leaseholds of any term thereon), real property (or rents or leaseholds of any term thereon) and computer software.

`(7) PERSON- The term `person' means any natural person, and unless the context clearly does not allow it, any corporation, partnership, limited liability company, trust, estate, government, agency, administration, organization, association, or other legal entity (foreign or domestic.)

`(8) Produce, provide, render, or sell taxable property or services-

`(A) IN GENERAL- A taxable property or service is used to produce, provide, render, or sell a taxable property or service if such property or service is purchased by a person engaged in a trade or business for the purpose of employing or using such taxable property or service in the production, provision, rendering, or sale of other taxable property or services in the ordinary course of that trade or business.

`(B) RESEARCH, EXPERIMENTATION, TESTING, AND DEVELOPMENT- Taxable property or services used in a trade or business for the purpose of research, experimentation, testing, and development shall be treated as used to produce, provide, render, or sell taxable property or services.

`(C) INSURANCE PAYMENTS- Taxable property or services purchased by an insurer on behalf of an insured shall be treated as used to produce, provide, render, or sell taxable property or services if the premium for the insurance contract giving rise to the insurer's obligation was subject to tax pursuant to section 801 (relating to financial intermediation services).

`(D) EDUCATION AND TRAINING- Education and training shall be treated as services used to produce, provide, render, or sell taxable property or services.

`(9) REGISTERED SELLER- The term `registered seller' means a person registered pursuant to section 502.

`(10) SALES TAX ADMINISTERING AUTHORITY- The term `sales tax administering authority' means--

`(A) the State agency designated to collect and administer the sales tax imposed by this subtitle, in an administering State, or

`(B) the Secretary, in a State that is neither--

`(i) an administering State, nor

`(ii) a State that has elected to have its sales tax administered by an administering State.

`(11) SECRETARY- The term `Secretary' means the Secretary of the Treasury.

`(12) Taxable employer-

`(A) IN GENERAL- The term `taxable employer' includes--

`(i) any household employing domestic servants, and

`(ii) any government except for government enterprises (as defined in section 704).

`(B) EXCEPTIONS- The term `taxable employer' does not include any employer which is--

`(i) engaged in a trade or business,

`(ii) a not-for-profit organization (as defined in section 706), or

`(iii) a government enterprise (as defined in section 704).

`(C) Cross reference-

`(13) TAX INCLUSIVE FAIR MARKET VALUE- The term `tax inclusive fair market value' means the fair market value of taxable property or services plus the tax imposed by this subtitle.

`(14) Taxable property or service-

`(A) GENERAL RULE- The term `taxable property or service' means--

`(i) any property (including leaseholds of any term or rents with respect to such property) but excluding--

`(I) intangible property, and

`(II) used property, and

`(ii) any service (including any financial intermediation services as determined by section 801).

`(B) SERVICE- For purposes of subparagraph (A), the term `service'--

`(i) shall include any service performed by an employee for which the employee is paid wages or a salary by a taxable employer, and

`(ii) shall not include any service performed by an employee for which the employee is paid wages or a salary--

`(I) by an employer in the regular course of the employer's trade or business,

`(II) by an employer that is a not-for-profit organization (as defined in section 706),

`(III) by an employer that is a government enterprise (as defined in section 704), and

`(IV) by taxable employers to employees directly providing education and training.

`(15) UNITED STATES- The term `United States', when used in the geographical sense, means each of the 50 states, the District of Columbia, and any commonwealth, territory, or possession of the United States.