[Congressional Record Volume 141, Number 117 (Wednesday, July 19, 1995)]
[Extensions of Remarks]
[Pages E1461-E1462]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



[[Page E 1461]]


                  FREEDOM AND FAIRNESS RESTORATION ACT

                                 ______


                         HON. RICHARD K. ARMEY

                                of texas

                    in the house of representatives

                        Wednesday, July 19, 1995
  Mr. ARMEY. Mr. Speaker, today I am introducing with Senator Shelby 
the Freedom and Fairness Restoration Act, which features a flat tax on 
all income as a complete replacement for today's complex, archaic Tax 
Code.
  I first introduced this bill June 16, 1994, and since that time have 
received over 5,000 letters of enthusiastic support. They include such 
phrases as ``Yes! Yes! Yes!'' ``It's about time'' ``Hallelujah'' 
``Let's do it'' and ``Amen!''
  In my view, the American people support the flat tax because of four 
chief virtues--it's simple, honest, progrowth, and fair. It's simple 
enough Americans can file their taxes on a return the size of a 
postcard. It's honest because it shows us right up front how much 
Government is costing us. It will promote economic growth and raise 
living standards because it eliminates the bias against saving, slashes 
marginal tax rates, and allows resources to seek their most efficient 
use. Finally, it's fair because it is true to the uniquely American 
definition of fairness: Everyone should be treated the same.
  Mr. Speaker, the flat tax is more than just a tax system which 
provides Americans the convenience of filing postcard-sized returns. 
It's also a vision of what America can be again--a formula for 
rejuvenating our economy, freeing our entrepreneurial talent, and 
reviving stagnant family wages. It's a commonsense plan for returning 
to a Government that is simple, honest, and fair to all our citizens. 
And who knows? It might just restore people's ability to trust their 
Government. And this is why the flat tax is in America's future.
  Mr. Speaker, I ask that the summary of my bill be included in the 
Record following my statement.
                        American Dream in Danger


          why we need the freedom and fairness restoration act

       Our government is too big, and it spends, taxes, and 
     regulates too much. This is the central crisis facing America 
     today. Consider . . .
       More Americans work for government than are employed in 
     manufacturing.
       The U.S. public sector is now larger than the entire 
     economy of any country in the world except Japan and the 
     United States itself.
       The average American family pays more in taxes than it 
     spends on food, clothing, and shelter combined.
       Every American works from January 1 to July 10, more than 
     half the year, not to support a family, but just to pay the 
     costs of government taxes and regulation.


                          an unfair tax system

       Perhaps the greatest ball-and-chain on America's freedom 
     and prosperity is the income tax. After eight decades of 
     being ``reformed,'' our tax system is so complex . . .
       Even the Internal Revenue Service can no longer give 
     accurate advice on it.
       The IRS sends out eight billion pages of forms and 
     instructions each year. Laid end to end, these would stretch 
     28 times the circumference of the earth.
       Americans spend 5.4 billion man-hours each year calculating 
     their taxes--more man-hours than it takes to build every car, 
     truck and van produced in the United States.
       The tax code puts a drag on our economy worth an estimated 
     $232 billion a year in compliance costs, an amount equal to 
     $900 for every man, woman, and child in the country.


                          a fundamental choice

       Government has become America's number one growth 
     industry--and a danger to the American Dream. As a nation, we 
     face a fundamental choice: Should the government become ever 
     larger as our freedom diminishes? Or should we take dramatic 
     action now to halt the growth of government and restore 
     greater freedom for our citizens? The Freedom and Fairness 
     Restoration Act says, Enough is enough. Its authors
      believe ordinary Americans are better equipped to make their 
     own financial decisions than politicians and tax lobbyists 
     in a far-off capital. More than a sweeping overhaul of the 
     tax code, the FFRA is a comprehensive assault on oversized 
     government, designed to halt its growth, expose its true 
     cost, and limit its influence on the lives of free 
     Americans. It would radically reorder the tax and spending 
     activities of the government. Here's what it would mean 
     for America:

                         1. Creates a flat tax

       Simple. Replaces the current complicated tax system with a 
     flat tax so simple Americans can file their taxes on a form 
     the size of a postcard.
       Fair. Repeals special preferences in the tax code and is 
     true to the uniquely American definition of fairness: 
     Everyone should be treated the same.
       Pro-growth. Ends double taxation of saving, thus promoting 
     investment and job creation. Rewards work by lowering 
     marginal tax rates. Creates a neutral tax system which will 
     liberate individuals to make financial decisions based on 
     common sense economics, not arcane tax rules.
       Pro-family, Eliminates the marriage penalty. Effectively 
     doubles the deduction for dependent children. By ending the 
     double taxation of savings, provides all Americans with the 
     tax equivalent of an unlimited Individual Retirement Account.
       Pro-taxpayer. Protects taxpayers by requiring a 
     supermajority of Congress to raise the tax rate or add 
     loopholes.
       Paid for. Raises nearly as much money as the current tax 
     system, while providing the American people with a modest tax 
     cut, paid for with spending cuts.

                          2. Controls spending

       Sets rigid spending caps. Sets unbreachable caps on federal 
     spending that will ensure spending growth is limited and the 
     federal budget reaches balance by the year 2002.
       Sunsets most programs. Genuinely reinvents government by 
     ending the legal authorization for most federal programs, 
     thus requiring Congress to fundamentally reexamine programs 
     before spending taxpayer dollars on them.
                                                                    ____

                The Freedom and Fairness Restoration Act


                              bill summary

       History. The FFRA was introduced by Rep. Dick Armey of 
     Texas on June 16, 1994, and subsequently introduced in the 
     104th Congress by Congressman Armey and Sen. Richard Shelby 
     of Alabama on July 19, 1995. Copies of the bill, which is 
     designated H.R. 1060 in the House and S. 1050 in the Senate, 
     may be obtained by calling the House Document Room at (202) 
     225-3456. The bill is divided into two sections, called 
     titles.

                    TITLE 1--A NEW, FAIR TAX SYSTEM

           Replaces the income tax with a 17 percent flat tax

       The bill repeals today's complicated income tax system in 
     toto and replaces it with a low, simple flat tax. Under the 
     bill, every dollar of income in the economy is taxed, with 
     wage and pension income collected from individuals and all 
     other income collected from businesses. Individuals pay 17 
     percent of wage income calculated on a return so simple it 
     can fit on a postcard. Businesses pay 17 percent of business 
     income, calculated on an equally simple return.
       Individual Wage Tax. Individuals pay 17 percent of all 
     wages, salaries, and pensions, after subtracting family 
     allowances. When fully phased in in 1998, the family 
     allowances will be $11,350 for a single person, $22,700 for a 
     married couple filing jointly, and $5,300 for each dependent. 
     These allowances are indexed to inflation. The flat tax 
     replaces the current income tax system, but not Social 
     Security and Medicare payroll taxes. Social Security benefits 
     would not be taxed.
       Business Tax. All business income, whatever the source 
     (corporate, partnership, sole proprietor, professional, farm, 
     and rental profits and royalties) is taxed at the one low 
     rate. Businesses pay 17 percent of the difference, if 
     positive, between revenues and expenses. Expenses are defined 
     as purchases of goods and services, capital equipment, 
     structures, land, wages and contributions to employee 
     retirement plans. No deductions are permitted for fringe 
     benefits, interest, or payments to owners. Collecting 
     business income earned by individuals at its source--the 
     business--allows for a simple, airtight system that ensures 
     all income in the economy is taxed.

                        Benefits of the flat tax

       Simplicity. Because the existing system's maze of 
     exemptions, loopholes, depreciation schedules, graduated 
     rates, and targeted tax breaks is eliminated, taxpayers will 
     save countless hours and expense in filing their yearly tax 
     returns. The Tax Foundation, a Washington, D.C.-based 
     nonprofit organization which closely monitors federal tax 
     policy, estimates the flat tax would reduce compliance costs 
     by 94 percent.
       Fairness. The flat tax will restore fairness to the tax law 
     by treating everyone the same. No matter how much money you 
     make, what kind of business you're in, whether or not you 
     have a lobbyist in Washington, you will be taxed at the same 
     rate as everyone else. While applying only the single rate to 
     all income, the flat tax is also progressive--thanks to the 
     generous family allowance. A family of four earning $30,000 
     would pay no income tax, the same family earning $50,000 
     would pay 6 percent, and the 

[[Page E 1462]]
     family earning $200,000 would pay 14 percent. The family allowances 
     also take millions of lower-income taxpayers off the tax 
     rolls entirely.
       Economic Growth. By eliminating the bias against saving, 
     slashing marginal tax rates, and allowing resources to seek 
     their most efficient use, the bill will spur productive 
     investment and economic growth. If the bill passed this year, 
     it would increase the annual income of the typical American 
     family by $4,300 by 2002.

                    Protects against higher deficits

       The bill is carefully designed to safeguard taxpayers 
     against higher deficits. In the first year after enactment, 
     the tax rate is set at 20 percent to provide modest tax 
     relief while limiting initial revenue loss. This initial tax 
     cut is fully paid for with cuts in federal spending. In the 
     third year, the rate is lowered to 17 percent, providing 
     additional tax relief. Lowering the rate will be possible for 
     two reasons. First, the bill's low marginal rate and neutral 
     treatment of saving will spur economic growth and thus expand 
     revenue to the Treasury. Second, the bill's spending reforms, 
     detailed in Title 2 below, will reduce expenditures. In 
     short, higher revenue coupled with lower spending will reduce 
     future deficits, free up resources to be returned to the 
     American people, and thus permit a freedom dividend to the 
     American taxpayer in the form of a lower tax rate.

                      Guards against higher taxes

       To help prevent a future Congress from raising taxes, 
     rewarding a special interest, or complicating the tax code, 
     the bill contains a provision which requires a 60 percent 
     supermajority of the House and Senate to (1) raise the tax 
     rate, (2) create multiple tax rates, (3) lower the family 
     allowance, or (4) add a loophole.
                    TITLE 2--REAL SPENDING RESTRAINT

                     Sunsets most federal programs

       All discretionary and unearned entitlement programs are 
     sunset, i.e., set to expire automatically, within two years 
     of enactment of the bill, and again following each decennial 
     census thereafter. The following earned entitlements are not 
     sunsetted: Social Security, Medicare, veterans' benefits, 
     federal retirement. Across-the-board sunsetting will force 
     Congress to reexamine every program individually and decide 
     which ones deserve to be continued rather than which ones 
     should be cut--the true way to reinvent government.

                       Caps entitlement spending

       The bill provides that the total level of entitlement 
     spending, excluding Social Security, may not exceed the 
     increase in inflation as measured by the consumer price 
     index, plus the growth in eligible population. If the 
     increase in these programs, exceeds this level, an automatic 
     entitlement sequester to eliminate the excess spending will 
     fall on all entitlements except Social Security.
       Entitlement spending now accounts for more than half of all 
     federal spending and is the fastest growing portion of the 
     budget. The entitlement sequester will place strong pressure 
     on Congress to make genuine reforms when reauthorizing 
     sunsetted programs.
                      Caps total federal spending

       The bill sets caps on overall federal spending, bringing 
     the federal budget to balance by the year 2002. If spending 
     exceeded the maximum spending amount established in law, an 
     across-the-board sequester would cut 80 percent from domestic 
     discretionary spending and 20 percent from defense spending.
       The bill also contains a ``look-back sequester.'' On July 1 
     of each fiscal year, the President's Office of Management and 
     Budget is required to determine the extent to which the 
     spending cap may be exceeded. If OMB finds the limit will be 
     exceeded, a look-back sequester will eliminate the excess 
     spending under the same 80-20 formula.

           Brings the President back into the budget process

       The bill restores the President to full participation in 
     the annual budget process by requiring that Congress pass a 
     joint resolution, which requires his signature, rather than a 
     concurrent resolution, which does not require his signature, 
     at the beginning of the process each year. Requiring a joint 
     resolution not only restores some of the President's lost 
     influence over spending, but it prevents the House and Senate 
     from disregarding the budget resolution, because a joint 
     resolution, unlike a concurrent one, has the force of law.
     

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