To require a study and comprehensive analytical report on transforming America by reforming the Federal tax code through elimination of all Federal taxes on individuals and corporations and replacing the Federal tax code with a transaction fee-based system.

April 13, 2005

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

To require a study and comprehensive analytical report on transforming America by reforming the Federal tax code through elimination of all Federal taxes on individuals and corporations and replacing the Federal tax code with a transaction fee-based system.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Comprehensive Transform America Transaction Fee Act of 2005'.

SEC. 2. FINDINGS.

The Congress finds the following:

(1) An effective stimulus plan meets the criteria of job creation, fiscal responsibility, fairness, targeting of unmet needs, tax reform and revenue sharing.

(2) The current tax structure creates economic distortions that limit growth and job creation.

(3) The estimated cost of compliance to taxpayers is five billion hours and approximately $200 billion.

(4) The tax code produces inefficiency in revenue raising that forces the nation to struggle unnecessarily under the burden of unequal and inadequate systems of public education and health care, a crumbling physical and social services infrastructure, and a crushing national debt.

(5) Implementing a transaction fee will provide the structure to maintain current expenditures on defense-related activities without sacrificing expenditures on additional important national priorities.

(6) Restructuring the tax code will promote economic prosperity.

(7) Replacing existing Federal taxes with a fee on transactions eliminates systemic inefficiency that plagues the current tax code.

(8) Economic analyses have estimated a transaction fee would allow businesses to undertake projects that are not profitable in the current tax system, and workers would be more willing to supply labor.

(9) Responsible tax reform is necessary for all to enjoy financial security, economic prosperity, educational opportunities, and affordable health care.

(10) Therefore, the Department of the Treasury shall prepare a comprehensive analytical report to achieve these stated goals.

SEC. 3. STUDY ON THE IMPLEMENTATION OF A TRANSACTION FEE.

(a) In General- The Secretary of the Treasury shall conduct an in-depth study on the implementation of a transaction fee in the United States. In particular, such study shall include a comprehensive analytical report of the proposal outlined in subsection (b) (as well as an implementation/action plan) to replace all existing Federal taxes with a per transaction fee based on the value of the transaction.

(b) Transaction Fee Proposal-

(1) IN GENERAL- The fee under the proposal would apply to all non-cash transactions (including checks, credit cards, transfers of stocks, bonds, and other financial instruments) and all high-dollar cash transactions.

(2) POTENTIAL EXCLUSIONS- The fee would not apply to--

(A) cash transactions of less than $500,

(B) salaries and wages by employers to employees, and

(C) transactions involving individual savings instruments through financial institutions.

(3) CASH WITHDRAWALS FROM FINANCIAL INSTITUTIONS- The fee under the proposal would apply to cash withdrawals from financial institutions and be set at a rate that is either double or higher than the standard transaction fee.

(4) FEE RATE-

(A) IN GENERAL- The fee rate is set at a level sufficient to generate revenues equal to revenues under the Internal Revenue Code of 1986.

(B) OTHER POTENTIAL USES OF FEE- The fee rate could be structured to cover 1 or more of the following:

(i) A national debt reduction plan requiring elimination of the current national debt of $7.7 trillion over a period of 10 years, with equal annual payments.

(ii) A Federal revenue sharing program providing funding to States to support 50 percent of the K-16 education costs of each State which agrees to adopt an equitable public school finance system.

(iii) A plan to meet the promised levels of certain provisions listed under the National Security Intelligence Reform Act of 2004 (Public Law 108-458), including those sections related to air cargo security (subtitle C of title IV of such Act), detention bed space (section 5204 of such Act), and border patrol agents (section 5202 of such Act); to create a dedicated funding stream for port security and improvements at levels recommended by the United States Coast Guard; and to increase expenditures for first responder grant programs funded under the Department of Homeland Security.

(iv) A Federal program providing quality health care insurance coverage (for the current estimated 45 million uninsured Americans).

(v) An increase in the military basic pay rate to a level comparable with that of Federal civilian pay, considering, but not being limited to, the following criteria: age, education, skills, years of service, and responsibilities.

(vi) A Federal revenue sharing program supporting community and economic development investments in new markets (rural and urban areas) at a level equal to 10 percent of current Federal tax revenues.

(vii) A plan to increase the pay for National Guard and Reserve soldiers to that of active duty military for periods of extended deployments abroad.

(viii) A Social Security and Medicare solvency plan ensuring that revenues continue to exceed expected outlays.

(5) PROGRESSIVITY- The base standard transaction fee shall not be greater than 1 percent for all noncash transactions under $500. If more revenues are needed to meet the requirements of paragraph (4), the Secretary of the Treasury would calculate the minimum level of progressivity required to cover these costs. This progressivity factor may include--

(A) a higher transaction fee for all transactions above $500, and

(B) a progressive schedule of rates to tiered ranges of transactions above $500.

(6) GENERAL PROVISIONS-

(A) LIABILITY FOR FEE- Persons become liable for the fee at the moment the person exercises control over a piece of property or service, regardless of the payment method.

(B) COLLECTION- The fees will be collected by the seller or financial institution servicing the transaction.

(c) Report of Study-

(1) IN GENERAL- The results of the study shall be submitted to the Congress by the Secretary of the Treasury in a comprehensive analytical report, detailing--

(A) the methodology employed in the calculation of the fee rate,

(B) the factors considered in assessing feasibility of the proposed revenue generating system and the weight applied to each, and

(C) the portion of the transaction fee attributable to each of the programs identified in subsection (b)(4)(B) and the methodology used to calculate each.

(2) OTHER REQUIREMENTS- The study shall (in the following order)--

(A) compute the fee needed to meet current revenue generation,

(B) compute the fee needed to meet revenue neutrality and generate additional revenue to support the program described in subsection (b)(4)(B)(i) (relating to national debt reduction plan),

(C) compute the fee needed to meet revenue neutrality and generate additional revenue to support all the programs described in subsection (b)(4)(B), and

(D) determine the utility of pegging changes in the transaction fee schedule of rates to the rate of inflation.

(3) COMPARATIVE ANALYSIS- The study shall include a comparative analysis of the existing revenue-raising system versus the proposed fee-based system on economic behavior. The study shall include an analysis of effect of the 2 systems on--

(A) job creation,

(B) economic growth,

(C) consumption,

(D) investments, and

(E) savings levels.

(4) TYPES OF TRANSACTIONS- The study shall include a broad-based examination of all types and categories of transactions, including information on frequency and value of transactions in each category.

(5) IMPACT OF EXEMPTIONS- The study shall examine the impact of the transaction fee exemption for all cash transactions under $500.

(6) PROGRAM OPERATIONS- The study shall provide instructions on program operations, including--

(A) transaction fee collection,

(B) transaction fee implementation, and

(C) transaction fee compliance, enforcement, and administrative costs.

(7) DISTORTIONS- The study shall include an analysis, prepared by the Secretary of the Treasury in consultation with the Secretaries of Commerce and Labor, offering methods of preventing and relieving potential distortions among economic sectors created by the implementation of the transaction fee. The study shall also include an analysis of the feasibility of temporarily (for a period of not longer than 1 year) reducing the fee rate (as otherwise determined in subsection (b)(4)) applicable to an economic sector if such sector is experiencing pronounced economic distress.

(8) FEE AS TOOL OF FISCAL POLICY- The study shall assess the transaction fee as a tool of Federal fiscal policy, including an impact analysis on the elimination or retention of existing tax expenditures, incentives, penalties, and credits. The study should also research and comment on options for rebating citizens currently not subject to Federal income taxes or other current aspects of the Federal tax code including, but not limited to--

(A) the earned income credit,

(B) the alternative minimum tax,

(C) the child tax credit, and

(D) the deduction for mortgage interest.

(9) IMPACT OF FEE BY INCOME LEVELS- The study shall include an assessment of the impact of the transaction fee by quartile income levels.

(10) IMPLEMENTATION PLAN- The study shall include a detailed action plan on how best to implement a transaction fee in the United States and shall include information on timeline, agency reform, potential pertinent regulatory issues, and type of congressional action needed.

(11) INTERNAL REVENUE SERVICE- The study shall--

(A) assume the transition and grandfathering of all existing personnel of the Internal Revenue Service,

(B) examine elements of the current Internal Revenue Service needed to administer the transaction fee, and

(C) examine the feasibility of modifying the overall mission and jurisdiction of the Internal Revenue Service from one focused on tax law application to one focused on uncovering waste, fraud, and abuse throughout the Federal Government.

(d) Due Date- The report of the study shall be submitted to the Congress not later than 1 year after the date of the enactment of this Act.

END