To amend the Internal Revenue Code of 1986 to restructure and replace the income tax system of the United States to meet national priorities, and for other purposes.

January 8, 2003

Mr. ENGLISH introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to restructure and replace the income tax system of the United States to meet national priorities, and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

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

(b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act a reference is made to the Code or to a section or provision of the Code, the reference shall be considered to be made to the Internal Revenue Code of 1986 or to a section or provision thereof.

(c) TABLE OF CONTENTS-

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I--FINDINGS; NEED TO REPLACE THE INCOME TAX

Sec. 101. Replacing the income tax of the United States.

TITLE II--SIMPLIFIED USA TAX FOR INDIVIDUALS

Sec. 201. Simplified USA Tax for individuals.

Sec. 202. Reorganization of the Code.

TITLE III--SIMPLIFIED USA TAX FOR BUSINESSES

Sec. 301. Repeal of present corporate income tax; new tax paid by corporations and other businesses.

Sec. 302. Repeal of chapter 6.

TITLE IV--DEFERRED COMPENSATION PLANS

Sec. 401. Provisions saved.

Sec. 402. Clerical Amendments.

Sec. 403. Clerical Amendments.

TITLE V--REPEAL OF ESTATE AND GIFT TAXES

Sec. 501. Repeal of gratuitous transfer taxes.

Sec. 502. Effective Date.

TITLE VI--TECHNICAL AND ADMINISTRATIVE CHANGES; EFFECTIVE DATES

Sec. 601. USA Tax Code.

Sec. 602. Revisions to the Code.

Sec. 603. Application of subtitle F.

Sec. 604. Clerical amendment.

TITLE I--FINDINGS; NEED TO REPLACE THE INCOME TAX

SEC. 101. REPLACING THE INCOME TAX OF THE UNITED STATES.

(a) FINDINGS- The Congress finds that--

(1) the current Tax Code is irreparably flawed and must be replaced;

(2) to enhance the liberty and protect the privacy of individuals, the Tax Code must be made simpler and nonintrusive, and it must be applied evenhandedly to all;

(3) to be fair and to provide for the prosperity of current and future generation, the Tax Code must give all individuals at all income levels an opportunity to save, invest and raise their standard of living and that of their children; and

(4) future economic growth requires a tax system that facilitates successful competition in the global marketplace.

(b) Main Features of Simplified USA Tax System-

(1) REPLACEMENT OF OLD TAX SYSTEM- Chapter 1 of subtitle A (related to income taxes) of the Code is repealed and replaced for years beginning after 2003.

(2) Estate and gift tax repealed.

(3) NEW TAX SYSTEM- The Simplified USA Tax consists of--

(A) a simplified tax collected from individuals, that for years after 2003 replaces the income tax imposed on individuals by section 1 of the Code, and

(B) a simplified tax collected from corporations and other businesses, that for years after 2003 replaces the income tax imposed on corporations by section 11 of the Code.

(4) SIMPLIFIED USA TAX ON GROSS PROFITS- Corporations and other businesses pay tax on their annual gross profits from business conducted in the United States, except that--

(A) export revenues are excluded, and

(B) imports are taxed.

(5) SIMPLIFIED USA TAX ON INCOME- Individuals pay tax on their annual income from wages, dividends, interest, and other financial income (including sales of property), except that--

(A) investment earnings on previously taxed income that is placed in a Roth IRA is exempt from further taxation,

(B) a portion of each family's income is exempt from tax, and

(C) deductions are allowed for--

(i) education costs,

(ii) religious, charitable, and other philanthropic donations,

(iii) home mortgage interest payments, and

(iv) contributions to qualified IRAs.

(6) CREDIT FOR FICA PAYROLL TAXES PAID- The amount of tax due is reduced by the payroll tax that is--

(A) in the case of an employee, withheld from wages, or

(B) in the case of a corporation or other business, paid by the employer.

(c) Concepts and Structure of New Tax System-

(1) GUIDING PRINCIPLES OF THE SIMPLIFIED USA TAX SYSTEM- The Simplified USA Tax is based on the following principles:

(A) National wealth and well-being depend on the work, skill, and savings and investment of people.

(B) Businesses are people and their capital working together.

(C) Capital makes people more productive.

(D) Everyone benefits from a growing stock of national savings which in turn allows for a growing stock of physical and human capital.

(E) Under the Simplified USA Tax, the deferral of taxation on investments in human capital represents an investment by the Federal government in the nation's capital stock and the Federal government shares in the return on its investment in the form of higher economic output and revenues in the future.

(2) SINGLE TAX IN 2 PARTS- The Simplified USA Tax is composed of a business tax and an individual tax which are 2 parts of a single tax system that subjects all income produced and received to taxation once and only once. The 2 parts are as follows:

(A) BUSINESS TAX AT THE SOURCE OF INCOME- Tax is paid by corporations and other businesses which produce and sell goods and services that are--

(i) the source of nearly all the gross domestic product of the United States, and

(ii) the ultimate source of income received by individuals.

(B) INDIVIDUAL TAX ON INCOME RECEIVED- Tax is paid by individuals when they receive wages and salaries as compensation for gross domestic product created by their work.

(3) SAVING AND INVESTMENT- The Simplified USA Tax allows people to save and businesses to invest as follows:

(A) Fair opportunity for people to save-

(i) OPTIONAL ELIMINATION OF DOUBLE TAXATION- When an individual earns income and is taxed on that income, the individual can save that income in a Roth IRA and not pay income taxes on the investment earnings.

(ii) DEDUCTIBLE AND EXCLUDABLE SAVINGS- The Simplified USA Tax continues provisions of present law that allow--

(I) lower income individuals and certain others to make deductible contributions to individual retirement accounts, and

(II) encourage employer sponsored savings and retirement plans that defer taxation of income through use of 401(k) plans and other qualified retirement plans.

(B) Fair opportunity for businesses to invest-

(i) NO PREPAYMENT OF TAX- When a business invests in plant and equipment--

(I) a deduction is allowed for the cost, and

(II) tax is deferred.

(ii) TAX ON EARNINGS AND RECOVERY OF COST- When recovered out of business revenues, both the cost of the investment and the earnings on the investment are included in gross profit subject to tax.

(iii) EXPENSING- The deduction for investment is the equivalent of allowing the cost of plant and equipment to be expensed instead of depreciated.

(4) FAIR OPPORTUNITY TO COMPETE IN THE GLOBAL MARKETPLACE- The Simplified USA Tax serves the strategic interests of the United States in international markets as follows:

(A) Border adjustable tax-

(i) AMERICAN-MADE EXPORTS- Goods and services produced in the United States can be sold into world markets free of tax.

(ii) FOREIGN-MADE IMPORTS- Goods and services imported into the United States bear a fair and proportionate share of the tax burden in the United States.

(iii) LEVELING THE INTERNATIONAL PLAYING FIELD- Border adjustments for exports and imports are consistent with international standards and practice.

(5) A SIMPLE AND UNDERSTANDABLE TAX- The Simplified USA Tax for individuals--

(A) is written in a simple, understandable form,

(B) contains only a few exemptions, deductions, and credits, and can be reported on a tax return only a small fraction the size of Form 1040.

(6) A nonintrusive, evenhanded tax-

(A) TAXPAYERS ARE IN CONTROL- When the rules are few and clear, taxpayers can calculate their own tax correctly and file their own returns without fear of mistake or of getting caught up in an argument with the IRS.

(B) LIMITED ROLE FOR IRS- When the rules are few and clear, the IRS does not have the broad interpretive power that puts taxpayers at risk of being treated unfairly and unevenly.

(C) RESTORING VOLUNTARY COMPLIANCE- When the rules are few and clear, the IRS can concentrate on helping taxpayers voluntarily pay their correct share of tax revenues for public use and benefit under a tax system that is understood and respected.

(7) Maintaining tax progressivity for individuals-

(A) GRADUATED TAX- Like the tax imposed by section 1 of the current Code, the Simplified USA Tax for individuals is a graduated tax.

(B) FAMILY LIVING ALLOWANCE- The Simplified USA Tax recognizes that every family's budget includes necessities. The Simplified USA Tax provides a family living allowance that exempts from taxation the first dollars earned and spent to maintain a basic standard of living.

(8) Businesses and individual share the tax burden-

(A) BUSINESS PORTION OF TAX BURDEN- Corporations and other businesses pay about the same portion of the total tax as under the current Code.

(B) INDIVIDUAL PORTION OF TAX BURDEN- Individuals pay about the same portion of the total tax as under the current Code.

(9) Emphasizing personal independence and responsibility-

(A) REINFORCING A CULTURE OF WORK AND THRIFT- Instead of being solely a calculation of how much they must pay to the government, the Simplified USA Tax converts the income tax into an annual calculation of how much people produce and contribute to the economy.

(B) GREATER CONTROL AND RESPONSIBILITY- Because people are not double taxed on their saving, they have--

(i) more control over their own income and taxes,

(ii) a greater ability to plan and provide for their own future, and

(iii) a fair opportunity to do so.

(10) More opportunity for wage earners at lower income levels-

(A) REFUNDABLE CREDIT FOR EMPLOYEE PAYROLL TAX- The amount of the payroll tax paid or withheld under the Code from an employee's wages (and paid into the Social Security and Hospital Insurance Trust Funds) is--

(i) credited against the employee's income tax, and

(ii) refunded to the employee to the extent in excess of the employee's income tax.

(B) NO EFFECT ON TRUST FUND OR BENEFITS- The income tax credit allowed for payroll taxes deposited in the Social Security Trust Fund does not--

(i) reduce the amount in such fund, or

(ii) reduce the payment of any person's benefits from the fund.

TITLE II--SIMPLIFIED USA TAX FOR INDIVIDUALS

SEC. 201. SIMPLIFIED USA TAX FOR INDIVIDUALS.

(a) IN GENERAL- Chapter 1 of the Code is amended to read as follows:

`CHAPTER 1--SIMPLIFIED USA TAX FOR INDIVIDUALS

`Subchapter A. Basic rules.

`Subchapter B. Roth IRA and other savings provisions.

`Subchapter C. Basis, business transactions, and nonrecognition transactions.

`Subchapter D. Rules for exclusions from gross income.

`Subchapter E. Rules relating to deductions.

`Subchapter F. Special business activities.

`Subchapter G. Accounting methods.

`Subchapter H. Nonresident aliens.

`Subchapter I. Trusts and estates.

`Subchapter J. Definitions and rules of application.

`Subchapter A--Basic Rules

`Sec. 1. Simplified USA tax for individuals.

`Sec. 2. Persons liable for the Simplified USA for individuals.

`Sec. 3. Gross income.

`Sec. 4. Exclusions from gross income.

`Sec. 5. Alimony and child support deductions.

`Sec. 6. Personal and dependency deduction.

`Sec. 7. Family Living Allowance.

`Sec. 8. USA deductions.

`Sec. 9. Homeowner deduction.

`Sec. 10. Education deduction.

`Sec. 11. Philanthropic transfer deduction.

`Sec. 13. Limitation on deductions.

`Sec. 15. Tax rates.

`Sec. 16. Kiddie tax.

`Sec. 17. Rules for filing status and rate tables.

`Sec. 20. USA tax credits.

`Sec. 21. Payroll tax credit.

`Sec. 22. Taxes-paid tax credit.

`Sec. 23. Indexing for inflation.

`SEC. 1. SIMPLIFIED USA TAX FOR INDIVIDUALS.

`(a) IMPOSITION OF TAX- An income tax is imposed on each individual described in section 2. The income tax shall equal the amount determined by applying the tax schedules in section 15 to the taxable income of the taxpayer for the taxable year and reducing the tax so determined by the USA tax credits for the taxable year.

`(b) TAXABLE INCOME- `Taxable income' means adjusted gross income, reduced by--

`(1) the personal and dependency deduction,

`(2) the Family Living Allowance, and

`(3) the USA deductions, including--

`(A) the homeowner deduction,

`(B) the education deduction, and

`(C) the philanthropic transfer deduction.

`(c) ADJUSTED GROSS INCOME- `Adjusted gross income' means gross income, reduced by--

`(1) the alimony and child support deductions, and

`(2) the qualified IRA deduction.

`(d) NAME- The tax imposed by this chapter shall be known as the `Simplified USA Tax for Individuals'.

`SEC. 2. PERSONS LIABLE FOR THE SIMPLIFIED USA TAX FOR INDIVIDUALS.

`(a) INDIVIDUALS ONLY- The Simplified USA Tax for Individuals shall apply only to individuals.

`(b) CITIZENS AND RESIDENT ALIENS- The Simplified USA Tax for Individuals shall apply to all citizens of the United States and to all resident aliens of the United States. Except as specifically provided in this chapter, the Simplified USA Tax for Individuals shall not apply to nonresident aliens.

`(c) NONRESIDENT ALIENS- For rules applicable to the compensation income of nonresident aliens, see subchapter H (sections 131 and 132). For rules on the withholding of tax on nonresident aliens, see chapter 5 (sections 1441-1464).

`(d) TAXPAYER- For purposes of this chapter, `taxpayer' means an individual, or, in the case of a joint return, the husband and the wife.

`SEC. 3. GROSS INCOME.

`(a) GENERAL DEFINITION- Except as otherwise provided in this chapter, `gross income for the taxable year' means all income from whatever source derived by a taxpayer during the taxable year, including (but not limited to) the following items:

`(1) Compensation for services, including (but not limited to)--

`(A) salaries,

`(B) wages,

`(C) commissions,

`(D) tips, and

`(E) distributions from business entities (as defined in section 171).

`(2) Fringe benefits (except as specifically excluded by section 4(a)), including (but not limited to)--

`(A) the cost of health, disability, life or other similar insurance paid by an employer if the taxpayer is indirectly or directly the beneficiary of the policy or has the right to name the beneficiary of the policy,

`(B) employer-paid parking (unless the employee uses the automobile parked in the space regularly on employer business),

`(C) employer-paid educational benefits,

`(D) employer-paid housing (other than housing provided for the convenience of the employer),

`(E) employer-paid meals (other than meals provided for the convenience of the employer or reimbursement for the reasonable cost of meals incurred on overnight travel),

`(F) amounts contributed by an employer on behalf of an employee to a group legal services plan, and

`(G) dependent care assistance received from an employer.