[Congressional Record Volume 140, Number 145 (Friday, October 7, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 7, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                THE FREEDOM AND FAIRNESS RESTORATION ACT

 Mr. CRAIG. Mr. President, I want to call the attention of my 
colleagues in the Senate to a bill introduced some weeks back by our 
colleague in the other body, Representative Dick Armey of Texas.
  His bill, H.R. 4585, titled the Freedom and Fairness Restoration Act 
of 1994, outlines a far-ranging, sweeping declaration of war on big 
government. It displays again a vision of a government returned to the 
role of servant of the people, with its appetites for power and money 
reined in.
  From reducing most Americans' tax return to the size of a postcard, 
to enforcing a balanced budget, and demanding that the government take 
responsibility for the costs that its mandates impose on other parties, 
the bill is a refreshing reminder that reinventing government ought to 
run deeper than adjusting at the margins.
  A 17-percent flat tax system like that set forth in H.R. 4585 would 
represent the greatest paperwork reduction initiative in history. 
Automatic sunsetting of most government programs would remove the 
current presumption that, once a program is created, it is entitled to 
eternal life. Enforcing private property rights would recall the spirit 
of our Nation's founding.
  I have been studying this bill over the past weeks and I urge my 
colleagues to do the same. When the 104th Congress convenes in January 
1995, I believe many of us will realize that we return with a mandate 
to undertake just this kind of fundamental rethinking of the 
appropriate role of the Federal Government in our society.
  I look forward to that endeavor. I also ask to include several 
editorials and columns that have appeared in recent weeks on this 
legislation.
  The material follows:

               [From the Washington Post, Sept. 11, 1994]

                          We Need the Flat Tax

                          (By George F. Will)

       The first--make that the only--thing Congress should do 
     before adjourning is pass Rep. Dick Armey's ``Freedom and 
     Fairness Restoration Act.'' Congress won't, any more than a 
     crocodile will drain the swamp that is its habitat. Still, 
     the bill is a blueprint for relimiting government and 
     changing Washington's political culture.
       Armey, a Dallas Republican, believes government grows 
     faster than most Americans want or know because of the 
     stealth and meretriciousness of the political class. The 
     withholding tax siphons away money before earners see it. 
     Everyone, says Armey, knows how much his monthly car payment 
     costs, but who knows exactly how much the IRS is taking each 
     month? By the fiction of the ``employer contribution'' to 
     Social Security taxes, which actually is just part of the 
     employees' compensation, government blurs the fact that 
     government is taking a 15.3 percent bite from paychecks. Two-
     thirds of Americans pay more in Social Security taxes 
     (counting the employer ``contribution'') than in federal 
     income taxes, but do they know that? Under ``current services 
     baseline budgeting'' a $2 billion spending ``cut'' is 
     proclaimed when a program scheduled to increase $10 billion 
     is increased by ``only'' $8 billion. And there is the hidden 
     taxation of government subsidies and regulations, such as the 
     40 cents of the cost of an average jar of peanut butter that 
     is the cost of subsidizing peanut farmers. The average 
     family, says Armey, pays more in taxes than it spends on 
     food, shelter and clothing combined.
       The core of Armey's bill is a 17 percent flat tax on 
     income. This net tax cut for the nation would be paid for by 
     thorough simplification of the tax code and by spending 
     restraints.
       Taxpayers would add up their wages, salaries and pensions, 
     subtract personal and dependent deductions, and pay 17 
     percent of the remainder. With a personal deduction of 
     $26,200 for a married couple and $5,300 per child, a family 
     of four earning $36,800 would pay nothing. These high 
     allowances make Armey's flat tax progressive: The wealthy 
     would pay a larger percentage of their incomes in taxes than 
     middle-income people would pay. Many millions of the working 
     poor would be removed from the tax rolls. A family of four 
     earning $50,000 would pay 4 percent of its earnings, a 
     similar family earning $200,000 would pay 14 percent.
       But all would file their returns on a form the size of a 
     postcard. This would radically reduce the estimated 5.4 
     billion hours a year--as many hours as the entire population 
     of Indiana works--that Americans spend complying with federal 
     income tax laws. Furthermore, a flat tax would cause 
     wholesale and wholesome unemployment in Washington's parasite 
     class of lawyers and lobbyists who rent themselves to the 
     sort of people's economists call ``rent-seekers''--people 
     seeking to gain advantages, or impose disadvantages on 
     others, by tampering with the tax code's baroque 
     complexities.
       Because savings would be untaxed under the flat tax, there 
     would be more savings, so the pool of investment capital 
     would grow, interest rates would fall and new businesses 
     would proliferate. Elimination of capital gains taxation 
     would remove the disincentive to shift money from old 
     investments to new ones, and the stock market would boom.
       Armey's bill would build into the American year a dozen 
     incitements of popular resistance to government. By 
     eliminating withholding, it would require taxpayers to write 
     monthly checks to the IRS. Imagine: 12 occasions for 
     comparing the value of government benefits received with the 
     value of disposable income lost.
  Armey knows that his bill stands no chance in Congress as it is 
currently controlled. However, he believes the flat tax idea is going 
to be carried to Washington by many new members of Congress next 
January. Certainly the end of the Democrats' control of Congress would 
churn the national agenda.
       Armey, who has been tireless in taking his message on the 
     road and onto talk radio, believes his bill could be in 1994 
     what the Kemp-Roth tax cut proposal was in 1978--an 
     anticipation of a Republican president's program. Already 
     there is occurring here an unexpected shift in the 
     intellectual center of gravity.
       The coming of the Clintons and their friends was assumed to 
     mean the ascendancy in Washington of the Ivy League political 
     culture. However, the tone of Congress, which today is the 
     tone-setting institution in this town, is increasingly set by 
     two former professors of economics from universities far from 
     the Northeast, Sen. Phil Gramm from Texas A&M and the former 
     chairman of the economics department at North Texas State 
     University (now the University of North Texas), Dick Armey.
                                  ____


              [From the Omaha World-Hearld, July 28, 1994]

                ``New'' Flat Tax Idea Stirs Up Interest

                      (By William F. Buckley, Jr.)

       Rep. Dick Armey is an economist by training, a legislator 
     by profession, and a Republican of singular prominence. 
     Indeed, he is the chairman of the House Republican 
     Conference. He is not easily surprised, having been around 
     the track for many seasons, but he professes to be astonished 
     by the reception given to the bill he introduced last June in 
     Congress, the ``Freedom and Fairness Restoration Act.'' It is 
     a call for organic revision of the tax code, and its key 
     element is the flat tax, and according to the evidence, 
     people are truly excited about it.
       One gets proposals for a flat tax every now and again, and 
     not always from the right. It was the principal economic 
     plank of Jerry Brown when he ran for president in 1992, 
     though it was thought an aberration of sorts given that 
     liberals aren't supposed to endorse anything at all that 
     could lower the rate at which wealthy Americans and 
     corporations pay taxes.
       There are people out there who would not vote to lower the 
     tax rate these days, having inhaled presidential rhetoric 
     about fairness, even if it were absolutely demonstrated that 
     to do so would cause poor people to become richer. Their 
     interest is minimal: to make rich people poorer.
       Anyway, under the Armey tax code, you would be taxed 17 
     percent on what you earn. The word ``earn'' is used 
     carefully. You would not be taxed anything at all on 
     dividends or on capital gains. And corporations? Seventeen 
     percent on their profit.
       Wouldn't this gravely afflict poor people? Well, no, 
     actually. Because under the Armey tax code a single person 
     would not pay any taxes at all until after he earned $13,100. 
     If he were a household head, single--which nowadays applies 
     to about 30 percent of gestating households--he would begin 
     to pay only after earning $17,200. Every child would qualify 
     the parent for a deduction of $5,300, which is about double 
     the size of the current deduction and a great deal closer to 
     the cost of raising a child.
       What are the givebacks in the Armey proposal? No 
     deductions. No, none for mortgage interest even.
       What would be done about the deficit? Answer: For the first 
     year you freeze all entitlements at the current level. 
     Thereafter, entitlements rise only as much as inflation. The 
     estimated saving here over a period of a mere two years is 
     almost $600 billion. By pursuing such a code, which is to say 
     preventing the government from growing any bigger in 
     proportion to the private sector, we'd head toward a balanced 
     budget.
       Above all, the springs of productivity would leap up with 
     the joy of liberation. This sensation of a reduced overhead 
     would course through the arteries and veins of America.
       The proposal--the flat tax--is not novel. Indeed, the 
     author of these lines devoted a substantial part of a book to 
     the question, and that was 20years ago. The idea is there, 
     but the pulsations, to judge from the response to Armey, are 
     greater than at any time in the recent past.
       The reason for this, surely, is that the whole country is 
     aching to hear from the Republican Party something truly, 
     daringly, engagingly new. Not, ``Will we have total medical 
     coverage by 1998 or 1997?'' but something truly bracing, and 
     this is what Armey has come up with.
       Now there are two traditional launches given to tax 
     proposals of this kind. One is empirical, the second 
     philosophical. There is simply no doubting the bona fides of 
     economists like Armey and Milton Friedman, who genuinely 
     believe the proposition--and who have abundant evidence to 
     corroborate it--that the economic effect would be like the 
     mobile that lifts everything simultaneously.
       But the other launch asks the root question, which is: Are 
     we committed to equal treatment under the law? If so, how do 
     we swivel-hip our way around to charging a higher rate of 
     taxation to someone who elects to drive his taxi 70 hours per 
     week than to someone who works 40 hours per week?
       Rep. Newt Gingrich has promised that late in September he 
     will enunciate the half-dozen steps a Republican majority 
     would take if brought to power in November. One hopes the 
     Armey tax code will be one of them.
                                  ____


           [From the Philadelphia Daily News, July 26, 1994]

                  Finally, a Tax Plan That Makes Sense

       You think the battle over health-care reform has been 
     tough? Wait until everyone learns about Congressman Dick 
     Armey's plan for basically abolishing the Internal Revenue 
     Service.
       You probably don't know much about Armey or his flat-tax 
     proposal. Just wait. Later this year, as health care fades or 
     dies as an issue, his Freedom and Fairness Restoration Act 
     will become the biggest legislative battle since the income 
     tax itself.
       By the time the 1996 presidential election gets along, 
     Armey's Army will make every other domestic policy debate 
     seem second rate. As the congressman puts it, the average 
     family is mad about paying ``more in taxes than it spends on 
     food, clothing and shelter combined.''
       Armey says his flat tax will ``make it unnecessary for the 
     IRS to send out eight billion pages of paper or for the 
     taxpayers to spend 5.4 billion man-hours filling out tax 
     forms.''
       How will it work? Today's incomprehensive tax forms would 
     be replaced with a simple post card. You'd be asked how much 
     you earned in wages, salary and pensions. Then you would 
     deduct between $13,000 and $26,200 for dependents depending 
     on whether you are single, a single head of household or 
     married and filing jointly.
       Then add other deductions of $5,300 for all dependents; not 
     including your spouse, and you pay your tax of 17 percent of 
     wages, salary and pensions--minus your family deductions.
       That's it. On a post card.
       Thanks to those hefty deductions, the flat tax also becomes 
     very progressive while dropping lots of people from the tax 
     rolls altogether. Armey estimates that ``a family of our 
     earning $36,800 would pay zero percent of its income in 
     taxes, a family earning $50,000 would pay 4.5 percent, and a 
     family earning $200,000 would pay 14 percent.''
       Corporate taxes would be similarly simplified. The same 17 
     percent would be applied to gross revenue less purchases of 
     goods and services, capital equipment, structures, land and 
     wages and pension contributions paid to employees. No 
     deductions would be permitted for fringe benefits, interest 
     or payments to owners.
       Armey realizes his plan won't please many tax lawyers or 
     accountants, let alone Maalox salesmen. However, individual 
     and corporate taxpayers who spend about $600 billion 
     completing those eight billion pages of tax forms will 
     certainly smile as they throw away the Maalox.
       Some critics will dismiss Armey's plan simply because the 
     author is a conservative Republican from Texas. That's fair, 
     if your objective is partisan politics. However, Armey's 
     approach is disarmingly similar to the flat tax proposals 
     presented during the 1992 presidential election by former 
     California Gov. Jerry Brown.
       That means a conservative Republican congressman from Texas 
     has done nothing more, but nothing less, than translate 
     liberal Governor Moonbeam's greatest campaign idea into 
     legislative language. The result will be Armey's Army of 
     taxpayers who have been mad as hell for a very long time but 
     didn't realize there was anything they could do about it.
       Just think of it. No more double taxation of savings 
     because your capital gains and interest from savings are now 
     tax-free. Why? You already paid the tax when you earned the 
     money. No more double-dip for Uncle.
       Sure, everyone loses the cherished homeowner's deduction, 
     just as a business loses deductions for interest costs when 
     it borrows billions of dollars to raid other businesses. The 
     trade-off comes as everyone, and every business, gets a 
     clearer, simpler and lower tax payment which only taxes what 
     you earn, this year.
       Simultaneously, a massive percent of that $600 billion 
     which Americans now spend reading, preparing, defending, and 
     disassembling under the current IRS non-system will be saved. 
     Much of that $600 billion, annually, can now be invested in 
     anything you or your employer wants instead of trying to fool 
     Uncle Sam.
       What's $600 billion worth? It's twenty times the amount of 
     money President Clinton wanted for his economic stimulus 
     package, but it's free. It's money we won't waste traipsing 
     down the worthless IRS paper trail nor add to the national 
     debt.
       Army's proposal is so ingenious, so populist and so timely 
     that it will probably be stolen by multiple 1996 presidential 
     candidates. In fact, after he loses the health-care battle, a 
     lame duck Bill Clinton may well embrace it.
       He'll be desperate for something to polish his tarnished 
     New Democrat image, and there won't be anything Armey could 
     do to prevent Clinton from stealing this idea. It may 
     surprise you to discover that Armey probably wouldn't care.
       He's not one of those pit-bull partisans who cares more 
     about getting credit than getting something done.
       He see his Freedom and Fairness Restoration Act as ``a 
     populist proposal in the finest sense. By taking power from 
     the government and returning it to the people, it reflects 
     great confidence in the integrity and know-how of free 
     Americans. It is a proposal for those who believe in the 
     American Dream.''
       He won't care if Clinton steals his dream as long as 
     everyone can enjoy it.
                                  ____


               [From the Washington Times, June 16, 1994]

                    Declaring War on Big Government

       Why should big-government types have all the fun offering 
     sweeping proposals? Why not a sweeping proposal for a drastic 
     limitation on the size of the federal government and the 
     scope of its activities? Now we have one. Rep. Dick Armey is 
     introducing today a bill that amounts to nothing less than a 
     declaration of war against big government and the pieties 
     espoused by its acolytes.
       His Freedom and Fairness Restoration Act, is not content to 
     tinker at the margins with smallish conservative reforms, an 
     activity rather like pruning kudzu. Instead, Mr. Armey's 
     legislation proposes to radically alter the foundation of the 
     modern federal government by changing the way Washington get 
     and spends of taxpayer monies and by capping both the direct 
     and the indirect costs of government.
       Taxes would be radically reduced, and more important, 
     simplified. After a couple of years of transition, the bill 
     calls for one tax rate of 17 percent, both for individuals on 
     their incomes and businesses on their profits. Single people 
     would enjoy a personal exemptions on the first $13,100 of 
     income, with single heads of household permitted a $17,200 
     exemption. Married couples filing together would have $26,100 
     as their tax starting point. Taxpayers would have a $5,300 
     exemption for each dependent. So much for all the wasted 
     energy and complicated diseconomic actions taken through tax 
     contortionism. With such a simple and straightforward tax 
     code, businesses and individuals could make life decisions 
     based on their true druthers rather than on their analysis of 
     the tax consequences.
       Such a tax system, because it would reduce Washington's 
     revenues, would put a crimp in the federal government, but is 
     not in and of itself enough to transform the dynamics of 
     national politics. And so Mr. Armey's package proposes an 
     even more radical assault on the current system: the end of 
     withholding. Taxation was not able to soar until the 
     invention of withholding. By taking money out of the paycheck 
     before it is ever in the worker's pocket, taxpayers are not 
     confronted with how much money they are handing over to the 
     government. As any investment advisor will counsel, the way 
     to save is to have money automatically taken out of your 
     pay--all of a sudden, saving is easy. So too with taxation. 
     Not only do we not feel the true bite of taxation, the system 
     has been set up so that we think we are getting goodies from 
     Uncle Sam in the form of tax rebates. Voters will take a 
     different view of taxes when they receive their pay up front 
     and have to write a monthly check to cover their tax 
     liabilities. Once this system of taxation is in place, there 
     will hardly be any need for the spending limits Mr. Armey's 
     bill also includes, because lawmakers will know all too well 
     that they won't have any luck coercing new revenues out of 
     the electorate through deficit spending.
       The Freedom and Fairness Act also calls for truth in 
     regulating. The CBO and OMB will be required to estimate in 
     detail the costs that will flow from federal regulation. This 
     would be a death blow to the current regulatory regime. How 
     compelling, for example, would be the administration's 
     current complaints about the expense of high tech medical 
     devices ($5 million, for example, for a new surgical imaging 
     machine) when those costs can be compared with the hundreds 
     of millions spent per life only hypothetically saved by EPA 
     rules and regulations?
       Rounding out the legislation is a provision that would 
     statutorily reestablish the Constitution's neglected takings 
     clause. If the government writes a regulation that 
     significantly reduces the value of a private citizen's 
     property, compensation is in order. The Constitution, of 
     course, already mandates this, but Mr. Armey isn't holding 
     his breath for the courts to enforce the Fifth Amendment's 
     injunction against takings.
       Republicans may be hesitant to follow Mr. Armey's lead, 
     thinking the legislation too fundamental a change. But 
     fundamental change is what the electorate has been clamoring 
     for, only to be bamboozled by Bill Clinton's vision of a new 
     and improved leviathan. It's a safe bet they did not have in 
     mind the creation of yet another gargantuan entitlement 
     program when Mr. Clinton promised welfare reform.
       Mr. Armey is showing that Republicans can take back the 
     rhetoric of change, and perhaps even make electoral hay out 
     of it. He says that some of his colleagues may fear that the 
     bill is a bigger chew than they can chew, but he thinks the 
     proposal is quite practical. ``With a Republican majority in 
     the House, this is eminently do-able,'' he says. ``But we 
     aren't going to get a Republican majority if we're 
     timid.''

                          ____________________