[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 488 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 488

To amend the Internal Revenue Code of 1986 to impose a flat tax only on 
  the earned income of individuals and the business taxable income of 
                 corporations, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

              March 2 (legislative day, February 22), 1995

  Mr. Specter introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to impose a flat tax only on 
  the earned income of individuals and the business taxable income of 
                 corporations, 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. INDIVIDUALS TAXED ONLY ON EARNED INCOME.

    (a) In General.--Section 1 of the Internal Revenue Code of 1986 is 
amended to read as follows:

``SECTION 1. TAX IMPOSED.

    ``(a) Imposition of Tax.--There is hereby imposed on the income of 
every individual a tax equal to 20 percent of the excess (if any) of--
            ``(1) the taxable earned income received or accrued during 
        the taxable year, over
            ``(2) the standard deduction (as defined in section 63) for 
        such taxable year.
    ``(b) Taxable Earned Income.--For purposes of this section, the 
term `taxable earned income' means the excess (if any) of earned income 
(as defined in section 911(d)(2)) over the foreign earned income (as 
defined in section 911(b)(1)).''
    (b) Increase in Standard Deduction.--Section 63 of such Code is 
amended to read as follows:

``SEC. 63. STANDARD DEDUCTION.

    ``(a) In General.--For purposes of this subtitle, the term 
`standard deduction' means the sum of--
            ``(1) the basic standard deduction, plus
            ``(2) the additional standard deduction.
    ``(b) Basic Standard Deduction.--For purposes of subsection (a), 
the basic standard deduction is--
            ``(1) $16,500 in the case of--
                    ``(A) a joint return, and
                    ``(B) a surviving spouse (as defined in section 
                2(a)),
            ``(2) $14,000 in the case of a head of household (as 
        defined in section 2(b)), and
            ``(3) $9,500 in the case of an individual--
                    ``(A) who is not married and who is not a surviving 
                spouse or head of household, or
                    ``(B) who is a married individual filing a separate 
                return.
    ``(c) Additional Standard Deduction.--For purposes of subsection 
(a), the additional standard deduction is $4,500 for each dependent (as 
defined in section 152) described in section 151(c)(1) for the taxable 
year.
    ``(d) Inflation Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1995, each dollar amount 
        contained in subsections (b) and (c) shall be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment under section 
                1(f)(3) for the calendar year in which the taxable year 
                begins, determined by substituting `calendar year 1994' 
                for `calendar year 1992' in subparagraph (B) of such 
                section.
            ``(2) Rounding.--If any increase determined under paragraph 
        (1) is not a multiple of $50, such amount shall be rounded to 
        the next lowest multiple of $50.''

SEC. 2. INCOME TAX DEDUCTION FOR CASH CHARITABLE CONTRIBUTIONS.

    (a) In General.--Subsection (a) of section 170 of the Internal 
Revenue Code of 1986 (relating to charitable, etc., contributions and 
gifts) is amended--
            (1) by striking paragraph (1) and inserting the following 
        new paragraph:
            ``(1) General rule.--There shall be allowed as a deduction 
        any charitable contribution (as defined in subsection (c)) not 
        to exceed $2,500 ($1,250, in the case of a married individual 
        filing a separate return), payment of which is made within the 
        taxable year.'', and
            (2) by striking paragraph (3).
    (b) Conforming Amendments.--
            (1) Section 170(b) of the Internal Revenue Code of 1986 is 
        amended by adding at the end the following new paragraph:
            ``(3) Termination of subsection.--This subsection shall not 
        apply to taxable years beginning after December 31, 1995.''
            (2) Section 170(c) of such Code is amended by inserting 
        ``of cash or its equivalent'' after ``means a contribution or 
        gift''.
            (3) Subsections (d) and (e) of section 170 of such Code are 
        repealed.
            (4) Section 170(f) of such Code is amended by striking 
        paragraphs (1) through (7) and by redesignating paragraphs (8) 
        and (9) as paragraphs (1) and (2), respectively.
            (5) Subsections (h) and (i) of section 170 of such Code are 
        repealed.

SEC. 3. LIMITATION OF HOME MORTGAGE DEDUCTION TO ACQUISITION 
              INDEBTEDNESS.

    Paragraph (3) of section 163(h) of the Internal Revenue Code of 
1986 (relating to interest) is amended--
            (1) by striking subparagraphs (A), (C), and (D) and 
        inserting before subparagraph (B) the following new 
        subparagraph:
                    ``(A) In general.--The term `qualified residence 
                interest' means any interest which is paid or accrued 
                during the taxable year on acquisition indebtedness 
                with respect to any qualified residence of the 
                taxpayer. For purposes of the preceding sentence, the 
                determination of whether any property is a qualified 
                residence of the taxpayer shall be made as of the time 
                the interest is accrued.'', and
            (2) by striking ``$1,000,000'' each place it appears and 
        ``$500,000'' in subparagraph (B)(ii) and inserting ``$100,000'' 
        and ``$50,000'', respectively.

SEC. 4. MODIFICATION OF TAX ON BUSINESS ACTIVITIES.

    Section 11 of the Internal Revenue Code of 1986 (relating to tax 
imposed on corporations) is amended to read as follows:

``SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.

    ``(a) Tax Imposed.--There is hereby imposed on every person engaged 
in a business activity a tax equal to 20 percent of the business 
taxable income of such person.
    ``(b) Liability for Tax.--The tax imposed by this section shall be 
paid by the person engaged in the business activity, whether such 
person is an individual, partnership, corporation, or otherwise.
    ``(c) Business Taxable Income.--
            ``(1) In general.--For purposes of this section, the term 
        `business taxable income' means gross active income reduced by 
        the deductions specified in subsection (d).
            ``(2) Gross active income.--For purposes of paragraph (1), 
        the term `gross active income' means gross income other than 
        investment income.
    ``(d) Deductions.--
            ``(1) In general.--The deductions specified in this 
        subsection are--
                    ``(A) the cost of business inputs for the business 
                activity,
                    ``(B) the compensation (including contributions to 
                qualified retirement plans but not including other 
                fringe benefits) paid for employees performing services 
                in such activity, and
                    ``(C) the cost of tangible personal and real 
                property used in such activity.
            ``(2) Business inputs.--For purposes of subparagraph (A), 
        the term `cost of business inputs' means--
                    ``(A) the actual amount paid for goods, services, 
                and materials, whether or not resold during the taxable 
                year,
                    ``(B) the fair market value of business inputs 
                brought into the United States, and
                    ``(C) the actual cost, if reasonable, of travel and 
                entertainment expenses for business purposes.
        Such term shall not include purchases of goods and services 
        provided to employees or owners.
    ``(e) Carryover of Excess Deductions.--
            ``(1) In general.--If the aggregate deductions for any 
        taxable year exceed the gross active income for such taxable 
        year, the amount of the deductions specified in subsection (d) 
        for the succeeding taxable year (determined without regard to 
        this subsection) shall be increased by the sum of--
                    ``(A) such excess, plus
                    ``(B) the product of such excess and the 3-month 
                Treasury rate for the last month of such taxable year.
            ``(2) 3-month treasury rate.--For purposes of paragraph 
        (1), the 3-month Treasury rate is the rate determined by the 
        Secretary based on the average market yield (during any 1-month 
        period selected by the Secretary and ending in the calendar 
        month in which the determination is made) on outstanding 
        marketable obligations of the United States with remaining 
        periods to maturity of 3 months or less.''

SEC. 5. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 1995.
                                 <all>