[Congressional Record Volume 142, Number 7 (Monday, January 22, 1996)]
[Extensions of Remarks]
[Pages E37-E46]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E37]]


                   ``UNLEASHING AMERICA'S POTENTIAL''

                                 ______


                           HON. NEWT GINGRICH

                               of georgia

                    in the house of representatives

                        Monday, January 22, 1996

  Mr. GINGRICH. Mr. Speaker, on behalf of Senate Majority Leader Bob 
Dole and myself, I would like to bring to my colleagues' attention the 
following report by the National Commission on Economic Growth and Tax 
Reform entitled ``Unleashing America's Potential.''

                        Letter to the Commission


                                foreword

 To the Members of the National Commission on Economic Growth and Tax 
                                 Reform

       ``Taxation without representation is tyranny.'' Those are 
     the words that helped to ignite the American revolution over 
     two centuries ago.
       As we approach the 21st century, the crescendo for tax 
     reform continues to build, year after year, election after 
     election. Americans have looked at a tax system constantly 
     increasing in both rates and complexity, and concluded that 
     taxation with representation wasn't so good either.
       The current system is indefensible. It is overly complex, 
     burdensome, and severely limits economic opportunity for all 
     Americans.
       We made clear on the very first day of the 104th Congress 
     that our top priority would be to change the status quo and 
     to bring fundamental change to America. And we agreed that 
     there is no status quo that needs more fundamental changing 
     than our tax system.
       We envision:
       A tax system that is fairer, flatter, and simpler.
       A tax system that promotes, rather than punishes, job 
     creation.
       A tax system that eliminates unnecessary paperwork burdens 
     on America's businesses.
       A tax system that recognizes the fact that our families are 
     performing the most important work of our society.
       A tax system that provides incentives for Americans who 
     save for the future in order to build a better life for 
     themselves and their families.
       A tax system that allows Americans, especially the middle-
     class, to keep more of what they earn, but that raises enough 
     money to fund a leaner, more efficient federal government.
       A tax system that allows Americans to compute their taxes 
     easily, without the need for a lawyer, an accountant--or 
     both.
       To help make this vision a reality, we named Jack Kemp, one 
     of America's most innovative thinkers on economic policy, to 
     head the National Commission on Economic Growth and Tax 
     Reform--a commission that included thirteen more outstanding 
     Americans.
       The entire commission worked diligently for the past 
     several months, holding public hearings in eight cities, 
     while constantly thinking about how to create a better tax 
     system.
       Their final report is guaranteed to stimulate this 
     important national dialogue. It will surely serve as a 
     catalyst for congressional hearings and debate. We hope that 
     it will also trigger conversations around kitchen tables, 
     water coolers, and in town hall meetings across the country.
       We invite all those who read this report to write us with 
     your thoughts on its recommendations and conclusions, and to 
     share with us other suggestions on how we can create a tax 
     system that promotes economic growth and opportunity for all 
     Americans.
     Bob Dole,
       Senate Leader.
     Newt Gingrich,
       House Speaker.

                        A New Level of Thinking


                                preface

       ``They act like all that money is born in Washington, 
     D.C.'' Perhaps no comment has better summarized the problem 
     with our nation's capital than this observation by Ed 
     Zorinsky, the late Democratic Senator from Nebraska. And 
     nowhere is this governmental conceit expressed more 
     destructively than in the workings and effects of our 
     Internal Revenue Code.
       Many previous attempts at tax reform have been marred by 
     the inside-the-beltway assumption that the wealth of the 
     nation belongs to its government. This position has 
     perpetuated what could be called the ``tin-cup syndrome''--an 
     environment in which the political competition over scarce 
     resources replaces the economic competition that produces 
     growth, creates jobs, spurs innovation and productivity. As a 
     consequence, the tax code has over the years become 
     increasingly politicized, and is seen less as a simple tool 
     for raising revenue than as an instrument for social and 
     economic engineering. In turn, this has spawned a virtual 
     industry of tax specialists and special interest lobbyists, 
     while exponentially increasing the complexity of the code.
       The National Commission on Economic Growth and Tax Reform 
     set out with a different set of assumptions, beginning with 
     the belief that the purpose of the tax code is to raise money 
     while leaving citizens as free as possible to pursue the 
     American dream. Our charge from Senate Leader Dole and 
     Speaker Gingrich was clear: Listen first and learn from the 
     American people. We listened to ordinary taxpayers in 
     hearings around the country. What we heard was a great deal 
     of frustration, concern, and yes, anger with the current 
     system. Our hope has been to channel those frustrations into 
     a set of concrete principles and recommendations that any new 
     tax reform legislation must follow if it is to meet the needs 
     and expectations of the American people.
       From June until September 1995, we heard from a cross-
     section of American taxpayers in Boston, Omaha, Charlotte, 
     Palo Alto, south-central Los Angeles, Harlem, Cleveland, and 
     Washington, D.C. We listened to and learned from family 
     farmers and high-tech entrepreneurs, small businessmen and 
     women, medium-sized and large manufacturers, governors and 
     mayors, congressmen and senators, leading economists and 
     local activists.
       Unlike previous ``reform'' commissions, our activities were 
     financed without a dime from the American taxpayer. Expenses 
     were met through private contributions from more than 1,500 
     donors. The fourteen commissioners received no compensation 
     for the long hours and hard work, save the tremendous reward 
     of knowing their sacrifices would help shape American 
     history. This is an extraordinary group of American citizens 
     who have demonstrated through untold hours of hearings, 
     deliberations, and study their dedication to chart a course 
     that will lead to a better America for their children and 
     grandchildren. We believe we have set that course.
       In 1941, in a famous essay for Life magazine, Henry Luce 
     anticipated that the 20th century would be remembered as the 
     American Century. The decades and events that followed--the 
     defeat of Nazi Germany, the collapse of Communism, the 
     expansion of American influence abroad--bore this prediction 
     out. Today, many Americans fear they see that era of American 
     preeminence slipping away. The optimism and boundlessness 
     that have always defined America are seen by some as fond but 
     faded relics to be quietly folded away.
       This report reflects the firm conviction that America can 
     do better. None of the members of this commission would have 
     accepted this challenge if we did not believe in the 
     possibility of real progress and real reform.
       Albert Einstein observed that ``the problems of today 
     cannot be solved at the same level of thinking on which they 
     were created.'' We have concluded that the complex tax code 
     of the 20th century is poorly suited for dealing with the 
     complex world of the 21st. The vision outlined in the 
     following pages cannot be realized by simply rearranging the 
     deck chairs on the Titanic we call our current tax code. A 
     brand new tax code, modeled on the principles and 
     recommendations proposed in this report, can chart the 
     economic waters ahead and launch our country on its voyage 
     toward the next American century.
                                                 Edwin J. Feulner,
                                                    Vice Chairman,
            National Commission on Economic Growth and Tax Reform.

                         Setting the Eagle Free


                              introduction

       ``In short, it is a paradoxical truth that tax rates are 
     too high today and tax revenues are too low, and the soundest 
     way to raise the revenues in the long run is to cut the rates 
     now . . . The purpose of cutting taxes now is not to incur a 
     budget deficit, but to achieve the more prosperous, expanding 
     economy which can bring a budget surplus.''

                                              John F. Kennedy,

                                        Economic Club of New York,
                                                December 14, 1962.
       These words of President Kennedy were a great inspiration 
     to me as the tax reform movement was launched in the early 
     1980s with the Kemp/Roth tax cut. Kennedy's vision and 
     courage can serve as examples for all Americans as we 
     struggle to make this nation better for our children and 
     grandchildren. His remarks from the Economic Club of New York 
     ring as true today as they did in 1962.
       At the first meeting of our commission back in June, I held 
     up a blank sheet of paper and said, ``This is what we start 
     with.'' That was our charge: Senate Majority Leader Bob Dole 
     and House Speaker Newt Gingrich appointed the National 
     Commission on Economic Growth and Tax Reform to study 

[[Page E38]]
     the current tax code, listen to the suggestions and ideas of people 
     from around the country, and submit to Congress our 
     recommendations for comprehensive reform. A very diverse and 
     dedicated group of 14 people, with the help of an invaluable, 
     overworked, and underpaid staff, set out to design an 
     entirely new tax system for America's 21st century; one which 
     would promise a booming economy, promote job creation, and 
     ensure the greatest possible opportunity for all Americans to 
     work, save, invest, and reach their potential. We operated 
     under the premise that an economic growth rate of 2.5% is 
     unacceptable to the American people.
       This commission was empowered not merely to offer 
     superficial reforms, to trim a rate here and close a loophole 
     there, but to begin with a tabula rasa and map out a totally 
     new tax structure for America's next century. We also wanted 
     to help inform the whole world, particularly the emerging 
     democracies, that the goal of tax policy is raising revenue, 
     not redistribution of wealth.
       Our nation has arrived at a unique moment in history. With 
     the passing of the Cold War, we are standing at the edge of a 
     new millennium with extraordinary possibilities. Our country 
     is poised to help lead the world into a new era of economic 
     growth fueled by an information-age technological revolution 
     that can yield unparalleled expansion in jobs, productivity, 
     innovation, and prosperity. We must embrace this opportunity 
     and challenge. However, such an embrace will prove difficult, 
     perhaps impossible, if we remain saddled with our current tax 
     code. The current system is indefensible: it is riddled with 
     special interest tax breaks, and it overtaxes both labor and 
     capital. We must construct a tax system that reflects our 
     highest values and unleashes our greatest potential.
       The comments and concerns we heard from the American people 
     over the last several months, coupled with a systematic 
     review of the current tax code, helped us establish certain 
     principles to guide us to our conclusions. Surely, a tax code 
     which is simple and fair must generate sufficient revenue so 
     that the federal government may carry out its legitimate 
     tasks. Second, it must not place a tax burden on those 
     members of society least able to bear one. And, perhaps most 
     important of all, it must not restrict the innovative and 
     entrepreneurial capacities of Americans upon which rising 
     living standards and our general prosperity so greatly 
     depend. Our proposals are in keeping with these principles.
       Wildly excessive and unjust taxes have locked away access 
     to capital and credit necessary for lower-income Americans to 
     launch the next generation of entrepreneurship. Today, sadly, 
     we see the American people's sense of dynamism and hope, 
     their ability to strive and compete diminished by a tax code 
     which penalizes success, retards investment, and sends 
     capital fleeing overseas. The commission is united in the 
     belief that only a pro-growth tax code can restore America's 
     confidence at home and her greatness abroad. We want a tax 
     code and an overall economy that will liberate the American 
     dream and remove the barriers to upward social and economic 
     mobility. The American ethos of entrepreneurship and optimism 
     made America great once before. We believe these proposals 
     will bolster that ethos again and help restore integrity and 
     honesty to our system.
       The author John Gardner has observed that there are many 
     contributing factors to the rise of civilization--accidents 
     of resources, geography, and military power. But whatever 
     other ingredients comprise the greatness of nations, he 
     writes, ``There occurs at breathtaking moments in history an 
     exhilarating burst of energy and motivation, of hope and zest 
     and imagination, and a severing of the bonds that normally 
     hold in check the full release of human possibilities. A door 
     is opened, and the caged eagle soars.'' That eagle, the 
     symbol of our nation, represents the creative spirit, 
     talents, and aspirations of the American people. The charge 
     of this commission and the intent of our recommendations is 
     to open the door and help set that eagle in all of us free.

                                                    Jack Kemp,

                                                         Chairman,
            National Commission on Economic Growth and Tax Reform.

                           Imagine An America


                 with a pro-growth, pro-family tax code

       The National Commission on Economic Growth and Tax Reform 
     recommends to the Congress and to the President of the United 
     States that the current Internal Revenue Code be repealed in 
     its entirety.
       The present system is beyond repair--it is impossibly 
     complex, outrageously expensive, overly intrusive, 
     economically destructive, and manifestly unfair.
       It is time to replace this failed system with a new 
     simplified tax system for the 21st century: a single low 
     rate, taxing income only once with a generous personal 
     exemption and full deductibility of the payroll tax for 
     America's working men and women.
       This system will reduce the tax burden on middle-income 
     people and will help remove the barriers that keep low-income 
     Americans from reaching their fullest potential.
       These changes, once in place, should be sealed with a 
     guarantee of long-term stability, requiring a two-thirds vote 
     of the U.S. Congress to raise the rate.
       This new system is predicted on a commitment to expanding 
     growth and opportunity. We believe the changes we propose 
     will help double the rate of economic growth.
       A stronger economy will create more jobs, raise family 
     incomes, expand ownership and entrepreneurship, and ensure 
     greater opportunity for our children and grandchildren. It 
     will also produce additional revenues for balancing the 
     budget and reducing the burden of national debt.
       The principles and recommendations contained in this report 
     comprise the ``Tax Test''--the standard to which any new tax 
     system must be held. We ask that Congress not pass nor the 
     President sign any tax legislation that fails to pass this 
     test. And we encourage the public to use the goals and 
     guidelines we offer as a road map through the coming national 
     debate on tax reform.
       Our aim: to introduce a new system of taxation that brings 
     out the best in the American character, that plays to our 
     strengths and not our weaknesses, that speaks to our hopes 
     and not our fears. Our recommendations are based on a vision 
     of America that places the individual--not the government--at 
     the center of society:
       We believe that government does not create opportunity; 
     citizens do, if government will get out of their way.
       We believe that government is not the entire of economic 
     growth; it is, more frequently, the monkey wrench in the 
     machine.
       We believe that taxpayers' earnings and savings--their 
     property--are not assets on loan from the government. The 
     government is power on loan from the people.
       One of the most serious shortcomings of previous attempts 
     at tax reform has been the inability of average Americans to 
     make their voices heard above the chorus of special 
     interests. We have tried a radically different approach: 
     Listening to the people first.
       In his first debate with Stephen Douglas, Abraham Lincoln 
     remarked that ``with public sentiment, nothing can fail; 
     without it nothing can succeed.'' We believe that any major 
     legislative attempts to replace the current tax code will 
     falter unless it is first preceded by a national debate on 
     what the new system should look like.
       Many previous attempts to reform public policy have failed 
     to achieve their aims because they substituted closed 
     meetings for democratic dialogue, focusing too much on expert 
     analysis and too little on citizens' concerns. By including 
     the public in the deliberations over tax reform, this 
     commission seeks to build broad-based consensus behind a new 
     tax system for America's next millennium.
       It was with this spirit that the commission held cross-
     country public hearings--from the historic home of the Boston 
     tea-party to the heart of south-central L.A. At every hearing 
     in every city, we asked people to tell us what they saw as 
     the problems with the current system and the goals any reform 
     plan should achieve.
       In Omaha, farmers pleaded for simpler filing and the 
     freedom to pass family farms on to their children without 
     fear of federal confiscation.
       In the Silicon Valley, high-tech entrepreneurs told of the 
     countless ideas conceived but never born because of a 
     scarcity of investment capital.
       In south-central Los Angeles, small business-owners voiced 
     frustrations at not being able to expand or hire new workers 
     because of a tax bit that eats away their profits.
       And in Harlem, inner-city entrepreneurs expressed both 
     bitterness and bewilderment at a tax code which sucked 
     revenues out of their neighborhoods while preventing 
     investment from flowing in.
       In our nation's capital, we heard from elected officials in 
     both the House and the Senate who have for many years been 
     leaders in tax reform. Because of their tireless public 
     service, tax reform is a priority issue on the nation's 
     agenda.
       We also heard from many of the finest economists in the 
     country who shared their knowledge and research with us at 
     every hearing.
       After our hearings, we held a series of working sessions to 
     analyze what we had heard and to begin discussing our 
     recommendations for change. During one of our working 
     sessions, the commissioners put aside the charts an graphs 
     for a moment, stepped back, and tried to imagine what kind of 
     world they would like America's next generation to grow up 
     in. We were asked to think about how replacing the tax code 
     might help bring that world about:
       Imagine an America enjoying a decade of economic growth at 
     nearly twice the present rate--creating jobs, expanding 
     opportunities, and lifting living standards for all.
       Imagine an America in which more dreams are in basements 
     and garages grow into multi-million dollar businesses because 
     abundant capital seeks out good ideas, and entrepreneurs and 
     investors are confident that their risk-taking will be 
     rewarded not punished.
       Imagine an America where it is easier to get a job than to 
     get on welfare, and where our inner cities share in America's 
     growth and prosperity. Imagine these neighborhoods ringing 
     out, not with sirens in the night, but with the sounds of new 
     storefronts being opened and new businesses being built.
       Imagine an America where home ownership and higher 
     education are within the reach of every American so that each 
     citizen owns a stake in the system and shares a common 
     interest and responsibility for its future.
       Imagine an America where young couples aren't asked to take 
     a tax hit in order to exchange their marriage vows, and where 


[[Page E39]]
     young families can save for their future without being punished for 
     their thrift.
       Imagine an America where Americans have enough to give, not 
     just to and through their government, but to their churches, 
     synagogues, mosques, their charities, and neighbors in need.
       Imagine an America where the I.R.S. becomes the ``TPA''--a 
     Taxpayer Protection Agency--to ensure that no one pays more 
     than is owed. Imagine a customer-friendly approach to raising 
     revenue, based on a belief in the basic honesty of the 
     American people, that treats them with dignity and respect.
       We believe that replacing our tax system with one that is 
     simpler and fairer can help to make these American dreams 
     come true.
       America was not founded on envy or resentment. The American 
     idea was never to keep everyone at the mean level, but to 
     give everyone the chance to rise as high as his or her 
     effort, initiative and God-given talent would allow. It was a 
     promise of equal opportunity, not of end results: the 
     confidence that whatever you aspired to become--be it artist, 
     inventor, or entrepreneur--you could make it happen here.
       As the country pursues this change, how we transition from 
     the existing bankrupt system to the new system will be 
     important. Complicated issues will arise. Nonetheless, we are 
     confident that the Congress and the President will solve 
     these transitions in order to bring about this new tax 
     system. Dramatic change never is easy, and complicated issues 
     will arise in the transition. But change we must, confident 
     that, with the leadership of the Congress and the president, 
     the American can-do spirit will prevail.
       A new tax system, as envisioned in the following pages of 
     this report, can take a first step toward renewing that sense 
     of hope and possibility by unleashing a cascade of benefits, 
     beginning with greater economic growth, lower interest rates, 
     and expanded job opportunities for working Americans.
       In this spirit, we invite the American people and their 
     elected leaders from, both political parties to use the Tax 
     Test as a checklist as they move forward in replacing the 
     current tax code. We urge the Congress and the President to 
     base any new legislation on the principles and 
     recommendations submitted in this report. Furthermore, we 
     urge President Clinton to appoint a presidential task force 
     or commission to bring the recommendations offered by this 
     congressionally appointed commission to the next level of 
     public debate.

                          At The Boiling Point

       ``My grandmother used to tell me the folk tale of the 
     frog,'' recounted Commissioner Herman Cain of his childhood 
     in Atlanta, Georgia. ``If you put a frog in a pot of hot 
     water, he would jump right out. But if you put him in a pot 
     of cool water and gradually turned up the heat, he wouldn't 
     notice the rising temperature and would eventually boil to 
     death.''
       The American taxpayer is in hot water. Escalating marginal 
     tax rates, increasing complexity, and advancing intrusiveness 
     have created a system that has reached the boiling point. 
     Over the years, Americans have surrendered more and more of 
     their freedom to higher taxes. The result has not been to 
     enhance economic security or to close the gulf between rich 
     and poor. Instead, it has led to fewer jobs, slow economic 
     growth, diminished hope and opportunity, an erosion of trust 
     and confidence in government, and an ebbing of the American 
     spirit of enterprise. It is a history that echoes James 
     Madison's warning that ``there are more instances of the 
     abridgment of the freedom of the people by gradual and silent 
     encroachments . . . than by violent and sudden usurpation.''
       The time has passed for incremental reform. The problems 
     with the current system have grown too deeply entrenched to 
     be solved with quick fixes and cosmetic repairs.
       We believe the current tax code cannot be revised, should 
     not be reinvented, and must not be retained. Therefore, the 
     commission is unanimous: It is time to throw out the seven-
     million-word mess of tax laws and regulations and begin anew.
       Marc Negri of Santa Rosa, California, wrote to tell us 
     that, ``The current system is so wrong and such a 
     disincentive to the everyday worker that it cannot be 
     saved.'' Lawrence Madsen of Mills, Wyoming, prepares peoples' 
     taxes for a living, and yet wrote: ``I am so disgusted with 
     the [system] that I must urge you to completely abolish the 
     Internal Revenue Code and start over.'' A couple from Astor, 
     Florida, was even more blunt: ``The current tax structure is 
     way out of date with the real world, too complicated with too 
     many loopholes. We say dump it!''
       Americans' eagerness for real change reflects in part their 
     frustration with a system that in the past forty years has 
     seen 31 ``significant'' reforms and an astounding 400 
     additional ``revisions'' through public laws. And yet the tax 
     code is more complex, more costly, and more economically 
     destructive than ever. This is the story of how we got here.


                       the road to tax oppression

       The New York Times, in a 1909 editorial opposing the very 
     first income tax, predicted: ``When men get in the habit of 
     helping themselves to the property of others, they cannot 
     easily be cured of it.'' The history of our tax code, in 
     economic terms, mirrors the course of most addictions: 
     advancing dependence, diminished returns, and deteriorating 
     health of the afflicted.
       Supporters of the Sixteenth Amendment touted the income tax 
     as the rich man's burden--forcing ``the Carnegies, the 
     Vanderbilts, the Morgans, and the Rockefellers'' to pay while 
     sparing the middle class from pain. Indeed, after the income 
     tax was enacted in 1913, fewer than two percent of American 
     families were required to file a tax return. Rates ranged 
     from 1 to 7 percent--with the highest rate applying only to 
     Americans who had the equivalent of $7.7 million in income in 
     today's terms.
       The rates did not stay that low for long. In 1916 the top 
     rate doubled. A year later, on the eve of America's entry 
     into World War I, it soared to 67 percent. With the Second 
     World War, the rate was raised to 94 percent. In the 1950s 
     the top rate remained at the sky high level of more than 90 
     percent. President Kennedy initiated legislation that cut the 
     top rate to 70 percent, but it was not until the Reagan 
     growth years that the top rate was lowered dramatically to 28 
     percent. Under the current administration, the rate has 
     resumed its ascent, with combined federal taxes pushing the 
     top rate above 40 percent, including Medicare taxes and 
     phase-outs.
       With every attempt by politicians to ``soak the rich,'' the 
     water mark has risen on the middle class. Author Frank 
     Chodorov has summed up the incremental march of encroaching 
     taxation: ``At first it was the incomes of corporations, then 
     of rich citizens, then of well-provided widows and opulent 
     workers, and finally the wealth of housemaids and the tips of 
     waitresses.'' Congress expanded the income tax into the ranks 
     of the middle class for the same reason Willie Sutton robbed 
     banks: that's where the money is.
       This shift was mainly achieved by gradually multiplying the 
     number of taxpayers required to file income tax returns and 
     by raising average tax rates on ordinary citizens. Until 
     World War II, the average tax rate (that is, the total tax 
     paid divided by income) on a family with a 1991 income of 
     $50,000 never rose above 4 percent. Since World War II, it 
     has never fallen below 14 percent.
       Marginal rates on the middle class have risen even more 
     dramatically. Marginal rates are the ``tax bracket'' rates 
     that apply to any extra dollar of income--such as raises, 
     overtime, bonuses, or a second family income. The marginal 
     middle class tax rate never rose above 8 percent prior to 
     World War II. Since then, it has never fallen below 22 
     percent, rising as high as 33 percent during the high-
     inflation, bracket creep years of the 1970s.
       Today, there are three principal defects of our income tax 
     system that must be fixed immediately.
       Economically Destructive: Steeply graduated tax rates on 
     both labor and capital destroy jobs, penalize saving and 
     investment, and punish personal efforts to get ahead through 
     hard work.
       Impossibly Complex: The mind-boggling complexity of the 
     current tax code imposes an unacceptable burden on taxpayers 
     and a huge cost on the economy.
       Overly Intrusive: The vast enforcement powers conferred on 
     the I.R.S. are increasingly seen as infringements of privacy 
     and personal freedom.


                        economically destructive

       In the famous Supreme Court case, McCulloch v. Maryland, 
     Chief Justice Marshall wrote: ``The power to tax involves the 
     power to destroy.'' Some of the ways in which the current tax 
     code destroys our economic vitality include:
       High marginal tax rates that weaken the link between effort 
     and reward, depress productivity, and kill jobs.
       Multiple layers of taxation on work, saving, and investment 
     that dry up new capital for investment.
       Capital gains taxes that act as a barrier to capital 
     formation--preventing the flow of investment to new 
     enterprises and would-be entrepreneurs.
       An ``alternative minimum tax'' that imposes immense 
     compliance costs on businesses, sapping resources that could 
     otherwise be put to constructive use.
       Double-taxation of corporate income which shrinks business 
     investment and encourages companies to take on extra debt.
       Estate and gift taxes that force families to sell their 
     businesses or family farms.
       A fundamental principle of economics is that the more you 
     tax something, the less you get of it. And if you tax 
     success, you get less success. The current confiscatory 
     system begs the questions: Why work harder if each extra 
     dollar earns you less? Why save for tomorrow when spending 
     today is cheaper? Why dream bigger, when little dreams are 
     less expensive? The disillusioned answer of many Americans is 
     simply: Why bother?
       But the current system does not simply sap the initiative 
     and aspirations of individual taxpayers, it undermines the 
     economic strength of our nation as a whole. As President 
     Kennedy once observed: ``An economy hampered with high tax 
     rates will never produce enough revenue to balance the 
     budget, just as it will never produce enough output and 
     enough jobs.''
       High marginal tax rates combined with multiple taxation of 
     work, saving, and investment act as a ``double-barreled 
     shotgun aimed at the American economy,'' accountant Ted 
     Krauss told the commission during a hearing in Washington. 
     The price tag was estimated by Professor Dale Jorgenson of 
     Harvard University who told the commission that the income 
     level in the United States 

[[Page E40]]
     could be 15 percent to 20 percent higher than today if these biases did 
     not exist.
       This translates to losses of as much as $4,000 to $6,000 
     per year for typical middle-income families. The tremendous 
     economic drain caused by an anti-work, anti-saving, and anti-
     growth tax system does not even take into account the 
     enormous waste of resources--the time, money, and 
     brainpower--lost in trying to comply with the current code.


                           impossibly complex

       Today's tax code is so complex that many Americans despair 
     that only someone with an advanced degree in rocket science 
     could figure it out. They are wrong. Even a certified genius 
     such as Albert Einstein needed help in figuring out his Form 
     1040.
       Consider this example from the Internal Revenue Code's 
     rules on the Earned Income Tax Credit. Here's how they 
     describe the little human creature we call a child:
       (A) In general.--The term ``qualifying child'' means with 
     respect to any taxpayer for any taxable year, an individual--
       (i) who bears a relationship to the taxpayer described in 
     subparagraph (B),
       (ii) except as provided in subparagraph (B)((iii), who has 
     the same principal place of abode as the taxpayer for more 
     than one-half of such taxable year,
       (iii) who meets the age requirements of subparagraph (C), 
     and
       (iv) with respect to whom the taxpayer meets the 
     identification requirements of subparagraph (D).
       This may look like English to the experts, but it is total 
     gibberish to most other Americans. If nothing is done to 
     simplify the impossible language of the current tax code, 
     every American will need a laptop just to figure it out.
       Professor James Eustice of NYU Law School once defined an 
     ``expert'' as ``a person who avoids small errors as he sweeps 
     on to the grand fallacy.'' The problem with the tax code, he 
     says, ``is that it has been written and interpreted by so 
     many `experts' that it has lost sight of the fact that [real 
     people] have to function under this system.'' The result 
     is a tax code so complex that even the `experts' 
     themselves can't figure it out. This was illustrated by an 
     annual survey of tax experts conducted by Money Magazine. 
     Each year, the magazine would send a hypothetical tax 
     return to 50 professional tax preparers, and every year it 
     got back a startling range of responses, often 
     encompassing 50 different answers. Needless to say, if the 
     ``experts'' have trouble understanding the tax system, the 
     odds are stacked against the rest of us.
       Convoluted rules and regulations force small businesses to 
     hire expensive accountants, forgo expansion or new 
     opportunities, or in some cases avoid the entire mess by 
     going underground. Tim Sabus of Denver, Colorado, wrote to 
     the commission: ``As an entrepreneur, I experience first hand 
     the horrors of our tax system. It has grown into a monstrous 
     predator that kills incentives, swallows time, and chokes the 
     hopes and dreams of many. We have abandoned several job-
     creating business concepts due to the tax complexities that 
     would arise.''
       Another exasperated business owner, Frank Goodnight, told 
     the commission at our Charlotte hearing that ``during the 
     recession of 1992, our company paid our accounting firm more 
     money than we paid in taxes.'' He is not alone: in 1991, the 
     Tax Foundation reported that small corporations spent a 
     minimum of $382 in compliance costs for every $100 they paid 
     in income taxes.
       According to 1995 I.R.S. estimates, businesses will spend 
     about 3.4 billion hours and individuals will spend about 1.7 
     billion hours embroiled in tax-related paperwork. That means 
     nearly three million people--more people than serve in the 
     U.S. armed forces--work full time all year just to comply 
     with tax laws, at a cost of about $200 billion a year, 
     according to the Tax Foundation. In economic costs, this is 
     like taking every new car, van, and truck that General Motors 
     builds in a year and driving them off of a cliff.
       In a recent hearing before the House Ways and Means 
     Committee, William Dakin, senior tax counsel of Mobil, 
     brought with him a six foot high stack of bound papers, 
     weighing 150 pounds. These were Mobil's corporate tax forms 
     for 1993. It cost Mobil an estimated $10 million, and the 
     equivalent of 57 people working full time for a year, just to 
     figure how much tax the company owed. This is the essence of 
     a brutally complicated tax system.
       Jeff Renner, a real-estate developer from Bellevue, 
     Nebraska, voiced the concern of many witnesses about the 
     costly burden of compliance: ``That time and effort and money 
     did not educate a single child, it didn't feed a single 
     family, and it didn't produce a single tangible object to 
     improve the life of anyone.'' And Roger McCarthy who runs an 
     engineering firm in Menlo Park, California, complained of how 
     the tax industry absorbs the high-tech talent that could be 
     working in productive fields: ``It is disturbing that we are 
     not competing with companies like Intel and Hewlett-Packard 
     for these top stars, but rather with Big Six accounting 
     firms.''


                            overly intrusive

       There is no simple way of administering a monstrously 
     complex tax code, just as there is no fair way of enforcing 
     an unfair system. Former Treasury official Ernest S. 
     Christian told the commission: ``The present federal income 
     tax code is a national disgrace that * * * has 
     characteristics that would be condemned in any human 
     personality. It is inexcusably class conscious, it is hypo-
     critical, it is meddlesome, it is overbearing, it is mean and 
     hurtful, it is covetous, and above all, it is downright 
     foolish.'' It is no wonder that the agency charged with 
     enforcing such a system has become the object of increasing 
     public ire.
       Perhaps the most troublesome consequence of our modern-day 
     income tax system is the enormous power that Congress has 
     conferred on the Internal Revenue Service to force taxpayers 
     to comply with the tax code. Twice as big as the C.I.A. and 
     five times the size of the F.B.I., the I.R.S. controls more 
     information about individual Americans than any other agency. 
     Without a search warrant, the I.R.S. has the right to search 
     the property and financial documents of American citizens. 
     Without a trial, the I.R.S. has the right to seize property 
     from Americans. What the I.R.S. calls its own ``presumption 
     of correctness'' leaves many taxpayers feeling that they are 
     ``guilty until proven innocent''--a standard which turns 
     norms of justice upside down.
       Even those within the I.R.S. hierarchy concede the 
     inquisitorial nature of the powers granted the agency. Fred 
     Goldberg, former Commissioner of Internal Revenue, laments 
     that ``while it is unfair to the many fine people who work 
     there, the I.R.S. has become a symbol of the most intrusive, 
     oppressive, and nondemocratic institution in our democratic 
     society.''
       The code is so complicated that the I.R.S. itself has 
     trouble understanding it. ``As a retired revenue agent, I 
     feel qualified to attest to the monstrosity that the Internal 
     Revenue Code has become,'' a citizen from Michigan wrote to 
     the commission. ``When people who are employed to enforce the 
     tax laws have difficulty understanding its complicated and 
     sometimes incomprehensible provisions, it's time for a 
     change.'' Of the liens the I.R.S. filed in 1990, a General 
     Accounting Office study found 16,000 errors. The error rate 
     for penalty notices to employers on tax deposits has stood as 
     high as 44 percent.
       Even when the I.R.S. is not in error, many of its practices 
     make little sense. For example, tax documents are not treated 
     as ``timely filed'' if sent by Federal Express rather than 
     the U.S. Postal Service. The I.R.S. charges taxpayers 
     interest even when the taxpayer is due a refund. In another 
     example, one particularly exasperated citizen wrote to the 
     commission and enclosed a notice just received from the 
     I.R.S. assessing a penalty against his company. For an 
     underpayment of one cent on his tax returns, the company 
     received a letter from the I.R.S. imposing a penalty of more 
     than $150. Others should be so lucky. Many who testified 
     before the commission told tales not just of tax penalties, 
     but of thousands of dollars in legal fees and countless hours 
     with lawyers in efforts to rectify minor and unwitting 
     infractions, or clear their records of unjust charges.
       In Charlotte, businessowner Jean Hodges recounted a tale of 
     horror in which she was forced to pay tens of thousands of 
     dollars and spend untold hours trying to correct an error 
     made by her company's bookkeeper. ``I would like to see 
     Congress pass legislation affording small businesses relief 
     from onerous and intimidating I.R.S. regulations,'' she said.
                                                                    ____

       The preceding pages illustrate what is wrong with the 
     current tax system. But the case for a 21st century tax 
     system must be made by more than a mere indictment of the 
     status quo. To paraphrase Peter Drucker: You have to decide 
     what's right before you decide what's possible. The following 
     chapter outlines principles upon which a better future can be 
     built.

                           Working Principles


                       for the way america works

       When a group of architects sits down to design a new 
     building, they don't start by picking out the draperies and 
     choosing the color of the carpet. They begin by creating the 
     basic outlines for the structure to come. Similarly, the 
     charge and purpose of this commission is not to dictate the 
     finishing touches of finalized legislation. Instead, it is to 
     establish the foundation upon which a new system can be 
     raised.
       The commission's six working principles for a 21st century 
     tax system are not isolated ideas, randomly grouped, but 
     rather principles that link together to form a sequence--a 
     chain of economic DNA--that can renew the health of our 
     economy and release the potential of the American people.
       Economic growth, the engine of opportunity and prosperity, 
     can only be unleashed by a tax code that encourages 
     initiative, hard work, and saving. Such a system must be 
     based on fairness, treating all citizens equally. The system 
     should achieve simplicity so that anyone can figure it out. A 
     fair tax system also requires neutrality, because the tax 
     code should not pick winners or losers, or tax saving more 
     heavily than consumption. The new tax system also needs 
     visibility, so that everyone gets an honest accounting of 
     government's cost. A visible tax system will have stability 
     so that people can plan for their futures.


                            economic growth

       Because expanding opportunity, prosperity, and social 
     mobility form the foundation of a free and healthy society.
     
[[Page E41]]

       None of the myriad challenges confronting our nation--be 
     they poverty, crime, racial tension, welfare dependence, or 
     the budget deficit--can be solved without strong economic 
     growth. Therefore, any new tax system must be predicated, 
     first and foremost, on a commitment to revitalizing the 
     American economy and lifting barriers to opportunity.
       No nation has ever taxes its way to prosperity. Indeed, one 
     of the world's fastest growing economies over the past 20 
     years, Hong Kong, has one of the lowest marginal tax rate 
     systems--15 percent or less--on labor and capital. Throughout 
     the ages, higher taxes have been inversely related to higher 
     productivity and higher growth. Our own history provides 
     evidence of this axiom.
       America has experienced three periods of very strong 
     economic growth in this century: the 1920s, the 1960s, and 
     the 1980s. Each of these growth spurts coincided with a 
     period of reductions in marginal tax rates. In the eight 
     years following the Harding-Coolidge tax cuts, the American 
     economy grew by more than five percent per year. Following 
     the Kennedy tax cuts in the early 1960s, the economy grew by 
     nearly five percent per year and real tax revenues rose by 
     29% from 1962 to 1968 (after having remained flat for a 
     decade). In the seven years following the 1981 Reagan tax 
     cuts, the economy grew by nearly four percent per year while 
     real federal revenues rose by 26 percent.
       Over the years, we have seen economic output rise as tax 
     rates fell (and fall as tax rates rose). But federal revenue 
     raised as a percentage of national output has remained flat. 
     As the accompanying chart indicates, the federal government 
     historically collects about 19 percent of gross domestic 
     product--regardless of how high the tax rate has been pushed.
       High rates simply mean a smaller economy--and less income 
     to tax. Clearly, 19 percent of a small economy brings in less 
     revenue than 19 percent of a big economy. One more reason why 
     economic growth should be the goal of any new tax system.


                                fairness

       * * * Because democracy is based on the principle of 
     equality before the law.
       One of the main themes the commission heard in hearings 
     around the country is that taxpayers are willing to shoulder 
     their share of the burden, as long as others pull their own 
     weight as well. The current tax code--with its confusion of 
     proliferating rates, deductions, exemptions, and transfers of 
     wealth from one constituency to another--contributes to the 
     overwhelming conviction of many Americans that the present 
     system is unfair.
       The definition of fairness that emerged from hours of 
     testimony before the commission was clear and unambiguous: 
     Any new system must satisfy three simple goals:
       Tax equally: Does it treat taxpayers equally?
       True progressivity: Is it compassionate to those least able 
     to pay?
       Lower tax rates: Does it keep the tax rate low?


                              tax equally

       To most Americans, fairness means that the rules apply to 
     everybody and everybody plays by the rules. Christine 
     Perkowski of Richboro, Pennsylvania, wrote to the commission: 
     ``I do not mind paying my fair share as long as everyone else 
     does, but I feel that many, many people and companies are not 
     paying their fair share because they have the money to hire 
     smart accountants and lawyers.''
       Under a simpler, fairer system, no one will get out of 
     paying their share--no matter how many ``smart accountants 
     and lawyers'' they can afford to hire. By streamlining the 
     current Rube Goldberg contraption of multiple rates and 
     rules, we can reduce the number of moveable parts that are 
     manipulated by those who seek to take advantage of the 
     system. Clearly, under the current multiple-rate system, any 
     tax ``loopholes''--deductions, exemptions, and credits--are 
     more valuable to the wealthy than to those in lower brackets, 
     reinforcing the perception that the rich do not pay their 
     fair share. A single-rate system would level the playing 
     field by eliminating the current distortion in which tax 
     breaks are worth more when a person's income is higher.
       Melvin Barlow of Las Cruces, New Mexico, argued this 
     definition of fairness in a letter to the commission: ``It is 
     not right that the harder a man works, the more he is taxed'' 
     because the government imposes a higher rate on each 
     additional dollar he earns. A single-rate system keeps pace 
     with the taxpayer as he climbs the hill of economic 
     opportunity and does not weigh him down more heavily with 
     higher rates at every step he tries to take.
       For taxable income above the personal exemption, if one 
     taxpayer earns ten times as much as his neighbor, he should 
     pay ten times as much in taxes. Not twenty times as much--as 
     he would with multiple and confiscatory tax rates. Not five 
     times as much--as he might with special loopholes. Ten times 
     as much income, ten times as much taxes. That's the deal.


                         true tax progressivity

       Americans must first be able to feed, clothe, and house 
     their families before they are asked to feed the federal 
     spending machine. A generous personal exemption will allow 
     those citizens at the bottom of the economic ladder to gain a 
     foothold and begin their climb before taxes take effect.
       Today, those who try to move from welfare to work face the 
     highest margin tax rates in America when lost benefits are 
     included--facing effective tax rates that can actually exceed 
     100 percent. For example, if a single mother on welfare takes 
     a job, she stands to lose more than a dollar for every dollar 
     she earns. Her first paycheck may be more than canceled-out 
     by the economic hits she takes when she loses Aid to Families 
     with Dependent Children, Medicaid, Food Stamps, and public 
     housing allowances. In addition to losing benefits, she now 
     also must pay Social Security and Medicare taxes, federal and 
     probably state income tax, while facing a host of work 
     related costs, including transportation and child care.
       We need a tax system that expands opportunity and furthers 
     economic independence by strengthening the link between 
     effort and reward, not by slapping poverty-inducing tax rates 
     on people as soon as they get their heads above water. True 
     progressivity can be achieved by a single tax rate with a 
     generous personal exemption. With an exemption, a ``single 
     rate'' does not mean that everyone pays the same percentage 
     of income in taxes. A generous personal exemption would 
     remove the burden on those least able to pay; as incomes 
     rise, the average tax rate would gradually rise up to the 
     single rate.


                            lower tax rates

       The consensus of the majority of witnesses who wrote to the 
     commission can be summed up in two words: lower taxes.
       Historians may point to America's beginnings and a 
     revolution deeply rooted in reaction to taxation of the 
     original thirteen British colonies. Others reference 
     religious traditions, including Moses' warning to Pharaoh 
     that he may tax up to one fifth and no more--before demanding 
     that he ``let my people go.'' Indeed, Commissioner Dean 
     Kleckner of Iowa touched a chord with many when he observed, 
     half-jokingly, that ``the Bible says we ought to tithe and 
     give 10% to the Lord. I have a hard time with the concept of 
     giving more to government than we're asked to give to God.''
       We suspect that more taxpayers have reached their 
     conviction that taxes are too high not by consulting their 
     history books or the Scriptures, but simply by comparing 
     their weekly paychecks to their family budgets and counting 
     all the sacrifices they must make simply to pay the 
     government. While any new tax code must raise sufficient 
     revenue to run the government, it must also be mindful of the 
     burdens these taxes place on America's working families. One 
     way to reduce this burden would be to restrain government 
     spending. By restoring the balance of power between the 
     federal government and the citizens who pay its bills, we can 
     restore basic faith in the system and keep the tax rate low.


                               simplicity

       . . . Because Life is too short and peace of mind too 
     precious to waste your time and lose your temper trying to 
     figure out your taxes.
       Filing tax returns will never be anyone's favorite pastime, 
     but neither should it be what it has become: one of life's 
     most nerve-wracking, gut-wrenching, and mind-numbing chores. 
     With a simpler system, taxpayers will be able to file their 
     returns on a single piece of paper in less time it takes to 
     finish your morning crossword puzzle.
       As detailed earlier, the current tax code is exceedingly 
     expensive to comply with, increasingly difficult to enforce, 
     and nearly impossible to understand. Ambiguities and 
     inconsistencies in the current tax code increase the 
     likelihood that taxpayers will make mistakes and fall victim 
     to enforcement techniques considered by many to be 
     infringements of personal liberties.
       Long ago the authors of the Federalist Papers warned, ``It 
     will be of little avail to the people that the laws are made 
     by men of their own choice if the laws be so voluminous that 
     they cannot be read, or so incoherent that they cannot be 
     understood.'' A simplified, fairer tax system will let 
     Americans get a handle on their taxes, a grip on their 
     government, and a hold of their future.


                               neutrality

       . . . Because the tax code should not pick winners or play 
     favorites, but allow people freely to make decisions based on 
     their own needs and dreams.
       The tax code should be used to raise revenue to run the 
     government while doing the least possible damage to the 
     economy. This means leaving individuals free to make 
     decisions and to set priorities based on economic reality--
     not on the bureaucratic whims of Washington, D.C.
       Taxes cannot help but raise the cost of everything they 
     fall on. But at least they should fall on things neutrally 
     without penalizing one form of economic behavior and 
     promoting another. As Senator Robert Bennett of Utah recently 
     pointed out, ``Neutrality means that the tax code should not 
     be used to punish the bad guys and reward the good guys. We 
     have other laws for that.'' Unfortunately, the current code 
     strives to act as economic traffic cop--giving green lights 
     to certain economic activities and red lights to others.
       The result of the biases and distortions in the current 
     system is to make the market less free, the system less fair, 
     and families less financially secure. As Frank Hayes, a 
     public accountant who testified before the commission in 
     Omaha, remarked: ``If there's a way to make things simpler 
     and take the tax aspect out of making day-to-day decisions, I 
     think everybody would become productive.''
     
[[Page E42]]

       Perhaps the single most irrational and economically 
     damaging aspect of today's code is the layer upon layer of 
     taxes on saving and investment. By hitting income saved and 
     invested harder and more frequently than income consumed, the 
     current system prompts taxpayers to spend today what they 
     might otherwise save for tomorrow. This is particularly 
     alarming considering the problems facing public retirement 
     programs and the need to strengthen private retirement 
     saving. The Bipartisan Commission on Entitlement and Tax 
     Reform offered analyses and proposals on this subject.


                               VISIBILITY

       . . . Because those who pay the price of government have a 
     right to see the bill.
       The history of hidden taxes, rapidly rising rates, and 
     perpetual budget deficits proves that what you don't know can 
     hurt you. The current system hides the cost of government 
     behind a chronic deficit and a maddening multiplicity of 
     taxes--many of which are virtually invisible to the taxpayer 
     who pays them. How much did we pay in payroll taxes last 
     year? What excise taxes were hidden in the prices of the 
     products we bought? What are the tax cost of exclusions, 
     deductions, and corporate income taxes? Few of us know the 
     answers.
       When it comes to these hidden levies, ignorance is 
     expensive bliss indeed.
       One of the biggest political fictions in American history 
     is the progressive taxation of ``Mr. Nobody''--the illusion 
     that ``painless'' taxes can be levied on businesses and on 
     the goods and services they sell. But goods and services do 
     not pay taxes. People do. While businesses collect taxes, the 
     burden of paying the ``business'' taxes ultimately falls on 
     each of one of us as investors, workers, or consumers.
       Moreover, the invisibility of many taxes perpetuates the 
     fantasy that government is free--even as its real costs 
     shrink our paychecks, sap our savings, drain our economy, and 
     inflate the budget deficit to ominous proportions. Bob 
     Genetski, an economist and author who testified at hearings 
     in Omaha, told the commission: ``The cost of government is 
     not obvious to people. If you hide the cost of government, 
     people are going to demand more government than they 
     otherwise would.'' By severing the connection between 
     government's cost and its consumption, the current system 
     deprives citizens of the information they need in order to 
     make rational choices about what they want to buy from 
     Washington and how much they are willing to spend.
       A visible system gives taxpayers an honest accounting of 
     government's expense and will make it far more difficult for 
     politicians to tinker with the tax code without the 
     democratic consent of those taxed.
       The incurable cynic H. L. Mencken once said, ``Conscience 
     is the inner voice which warns us somebody may be looking.'' 
     By making taxes visible, we can ensure that someone always 
     will be.


                               Stability

       . . . Because taxpayers should be able to plan for their 
     future without the rules being changed in the middle of the 
     game.
       Everyone has heard the old saw that there are only two 
     things in life that are certain: death and taxes. Given the 
     constant changes to the tax code over the past few decades, 
     the certainty of taxes has taken a perverse twist. Like 
     walking blindfolded down a ship's gangplank, you know the end 
     it out there--you just don't know when it'll arrive, how far 
     you'll fall, or how long you'll be able to keep your head 
     above water.
       This uncertainty has a debilitating effect on the economy, 
     making it very difficult for families and businesses, 
     particularly small businesses, to plan for their future with 
     confidence. This exacts a tremendous cost from those 
     taxpayers and business owners who must struggle to keep up 
     with ever-shifting rules and regulations. The retroactive tax 
     increases passed in 1993 packed a double-whammy--changing the 
     rules when the game was half over. A stable tax code must 
     allow individuals to start a business, buy a house, take out 
     a loan, put money into savings, or plan for their children's 
     education without fear of what might lurk behind the next 
     election cycle.
                                                                    ____

       We know what works . . . Freedom works. And only principles 
     for tax reform that maximize freedom can yield the 
     opportunities, economic growth, and untold possibilities for 
     human advancement that are its fruits. In his last public 
     address, Abraham Lincoln declared that, ``Important 
     principles may and must be inflexible.'' By laying down these 
     important principles, this commission hopes to help build a 
     future of growing prosperity for many generations to come.

                 A New Tax System for the 21st Century


                            recommendations

       Among the hundreds of testimonies and citizen letters 
     reviewed by this commission, one of the most compelling was 
     that of Van Woods, owner of Sylvia's Restaurant. Mr. Woods 
     and his family run a successful soul food establishment in 
     the heart of Harlem, a community with painfully high 
     unemployment. In concluding his testimony to the commission, 
     he said, ``Opportunity is the ability to look in the face of 
     my son and say: `I don't know if you will succeed, but you 
     can.' ''
       The objective of this commission, the aim of its members, 
     is to help make that promise a reality--not just for Mr. 
     Woods' children, but for every child in every neighborhood in 
     America's 21st century.
       In submitting these recommendations, the commission does 
     not seek to toss yet another piece of legislation on the 
     table. Nor was its goal to pick and choose among existing 
     plans, or worse, create a hodgepodge compromise from elements 
     of existing alter-natives. What we are offering to the 
     American people and their elected officials is a set of 
     standards--a quality control--that any new plan must meet if 
     it is to meet the bold objective of replacing the current tax 
     code with a fair and simple system. The preceding chapter 
     provides one half of the check-list: the principles that any 
     new system should embody. This chapter provides the other 
     half: key recommendations that any new system should follow.
       The core recommendations of the National Commission on 
     Economic Growth and Tax Reform are:
       Adopt a single, low tax rate with a generous personal 
     exemption
       Lower the tax burden on America's working families and 
     remove it on those least able to pay
       End biases against work, saving, and investment
       Allow full deductibility of the payroll tax for working men 
     and women
       Require a two-thirds super-majority vote in Congress to 
     increase tax rates
       We believe that, with a pro-growth, pro-family tax system, 
     we can achieve these goals within the context of budget 
     equilibrium. The commission believes that this new tax system 
     can satisfy our six working principles:
       Economic growth through incentives to work, save, and 
     invest;
       Fairness for all taxpayers;
       Simplicity so that anyone can figure it out;
       Neutrality so that people and not government can make 
     choices;
       Visibility so that people know the cost of government; and
       Stability so that people can plan for their future.
       The following pages explain the core recommendations in 
     light of these principles, and explore some of the trade-offs 
     involved in reaching a system that meets these goals. This 
     chapter also touches on a few of the corollary points that 
     flow from these main recommendations. Staff discussion papers 
     are provided for those who seek more detail on the concepts 
     involved.


                            recommendations

       Single Tax Rate.--A single rate is a fair rate. One tax 
     rate, coupled with a generous personal exemption, together 
     produce a progressive average tax rate. Low income taxpayers 
     would owe little or no tax. But everyone who earns enough to 
     cross the threshold of the exemption would face exactly the 
     same tax rate on any additional income.
       A single-rate system is not only fair, it also can satisfy 
     the principles of simplicity, visibility, and stability. A 
     single rate is clearly simple, and it is highly visible: one 
     rate--as opposed to the current, confusing mess--will stand 
     out and be remembered by all. A simple, visible system also 
     can be stable; by keeping our eyes on the single rate, we can 
     keep politicians' hands off it.
       Nobel Prize-winning economist F.A. Hayek described economic 
     redistribution through multiple tax rates as ``the chief 
     source of irresponsibility'' in politics and ``the crucial 
     issue on which the whole character of future society will 
     depend.'' A system of graduated marginal rates violates the 
     principle of fairness--that if a law applies to citizen A, it 
     must equally apply to citizen B.
       Take for example, two wheat producers, each farming the 
     same-sized plot of land. One of them produces 1,000 bushels 
     of wheat; the other through harder work and more careful land 
     management, produces 1,200 bushels. To tax the income 
     represented by the additional 200 bushels of wheat more 
     heavily than the income represented by the first 1,000 would 
     be demonstrably unfair to the more productive farmer. And 
     yet, that is the nature of a multi-rate tax system: it takes 
     more from people for their hard work, creativity, and 
     success.
       The added output--and the resulting added income--of one 
     taxpayer doe not diminish his neighbor, and is not earned at 
     his neighbor's expense. Indeed, it expands economic 
     opportunity, increases the availability of goods and 
     services, and helps others be more productive as well.
       True progressivity requires a low tax rate couple with a 
     generous personal exemption. This would grant low-income 
     Americans an ``economic head-start''--allowing them to begin 
     their climb toward economic independence before they are 
     asked to shoulder their share of government's costs. The 
     larger goal is to move beyond merely maintaining low income 
     Americans at subsistence level livelihoods toward giving them 
     an opportunity to permanently escape poverty.
       Here, as elsewhere, there are trade-offs involved. The goal 
     of protecting those least able to bear the burden of taxation 
     conflicts with the principle of visibility: those exempt from 
     taxes don't see the price of the government services we all 
     pay for.
       The commission believes that the costs--both economic and 
     moral--of burdening low-income people with taxes that can bar 
     them from reaching their fullest potential outweigh competing 
     concerns. By offering low-income Americans a window of 
     economic opportunity, the personal exemption can help 
     liberate those whom the public sector has failed to help and 
     the private sector has failed to reach.
     
[[Page E43]]

       Lower Tax Rates.--The commission recommends that the single 
     rate be as low as possible. We encourage the adoption of such 
     a low rate within the framework of budget equilibrium. 
     Furthermore, we strongly urge that the rate be lowered over 
     time as a growing economy yields rising revenues. We 
     recommend that added revenues be considered, not as more 
     Monopoly money for Washington, but as a ``growth dividend'' 
     to be paid out to the American people.
       Eliminate biases against work, saving, and investment.--The 
     principles of fairness and neutrality require that all income 
     be taxed the same, whether it is used for consumption or 
     saving, whether it is produced in small businesses or large 
     corporations, and whether it is earned by employees or the 
     self employed.
       Under the current system, income that is used for 
     consumption is taxed once, while income that is saved is 
     taxed again and again. For businesses, complex depreciation 
     rules mean that income from investment in buildings and 
     equipment is overstated. This forces people to pay taxes 
     before they have recovered the cost of their investment.
       The box at left provides an example of the problem created 
     by the current tax code.
       The biases result in less work, saving, and investment, 
     lower productivity and wages, fewer jobs, less income to 
     spend on housing and education, and fewer assets to furnish 
     income in retirement than would otherwise be the case. As the 
     example at left demonstrates, these biases affect every 
     family that is trying to save for the future.
       In order to end these biases, the tax system must either 
     let savers deduct their saving or exclude the returns on the 
     saving from their taxable income. It must end double-taxation 
     of businesses and their owners and permit expensing of 
     investment outlays. It must also address the following 
     issues:
       Capital Gains Taxes.--If a new tax system is to eliminate 
     biases against saving and investment, it also must abolish 
     separate taxation of capital gains. As commissioner Ted 
     Forstmann said, ``The biggest depressant on the rate of 
     capital formation is now the risk of confiscation by the 
     government.'' The United States now imposes some of the 
     highest tax rates on capital of any developed nation--a 28 
     percent tax on long-term capital gains unindexed for 
     inflation. Compare that with a 16 percent rate in France; a 1 
     percent rate in Japan; and a zero tax on capital gains in 
     Hong Kong, Germany, South Korea, Singapore, and Malaysia.
       The result is to punish risk-taking, shrink the pool of 
     capital needed for investment, and deprive would-be 
     entrepreneurs of a chance to climb the ladder of economic 
     opportunity. ``The tax on capital gains,'' argued President 
     Kennedy in 1963, ``directly affects investment decisions, the 
     mobility and the flow of risk capital . . . the ease or 
     difficulty experienced by new ventures in obtaining capital, 
     and thereby the strength and potential for growth in the 
     economy.''
       By shrinking the supply of available seed corn, the capital 
     gains tax acts as a future tax on wealth to be realized, 
     business to be built, and jobs to be created. Those hardest 
     hit are not the wealthy--who by definition have their capital 
     gains, their wealth, behind them--but rather all those who 
     have yet to realize their capital gains; the poor, the young, 
     and minorities.
       ``Death'' Taxes. It makes little sense and is patently 
     unfair to impose extra taxes on people who choose to pass 
     their assets on to their children and grandchildren instead 
     of spending them lavishly on themselves. Families faced with 
     these confiscatory taxes often find themselves forced to sell 
     off farms or businesses, destroying jobs in the process. ``We 
     must help to save the family farm, ranch, and business,'' 
     said Commissioner Jack Faris.
       Unfortunately, family businesses often get hit hardest 
     because they can't afford to hire expensive lawyers and 
     accountants. As Douglas Darch of Wake Forest, North Carolina 
     testified to the commission: ``There is something wrong with 
     a tax system that results in the systematic dismantling of 
     small businesses to meet estate tax obligations.''
       The tragedy is that while these taxes cause much suffering 
     for taxpaying families, they generate a relatively small 
     amount of revenue. Estate and gift taxes appear to count for 
     less than 1% of federal revenues--but even that low figure is 
     exaggerated and misleading. Professor Douglas Bernheim of 
     Stanford University testified before the commission that the 
     estate tax may not really raise any revenue at all, because 
     more income tax is lost from ``estate planning'' than is 
     ultimately collected at death.

     Full Deductibility of Payroll Taxes for all Working Americans.

       The Commission recommends that federal payroll taxes be 
     fully deductible--both for employers and employees. Many 
     employers and employees pay more in payroll taxes than they 
     do in federal income taxes. Making these taxes deductible for 
     both employers and employees will reduce obstacles to hiring 
     more workers and will fuel America's job growth into the 21st 
     century.
       Under the current tax system, workers pay income tax on 
     their Social Security tax--a tax on a tax. Employers can 
     deduct their half of the payroll tax, but employees cannot. 
     The combined burden of both income and Social Security tax is 
     particularly hard on workers with incomes too high to be 
     eligible for the Earned Income Tax Credit (roughly $25,000), 
     but too low to be below the threshold where the Social 
     Security tax stops being taken out of paychecks (about 
     $63,000).
       When employer and employee payroll taxes of 15.3% are taken 
     into account, workers in the 28% tax bracket actually face a 
     brutal marginal tax rate of more than 43% on any additional 
     income they earn. A single low tax rate would help relieve 
     this demoralizing tax penalty on work and saving. But it 
     still leaves a tax on a tax.
       Making the Social Security tax deductible would help reduce 
     the combined marginal tax rates on middle-income taxpayers 
     who get hit by both taxes. A one-earner couple with a $40,000 
     income currently pays tax as though the couple really 
     received the entire $40,000--even though they have already 
     paid over $3,000 as their share of the payroll tax, leaving 
     less than $37,000 on which they could possibly pay income 
     taxes. By making the payroll tax deductible, income taxes 
     would be calculated on the basis of working families' real 
     net incomes.
       This need for change was highlighted in a citizen letter to 
     the commission from Spencer Riedel of Flagstaff, Arizona, who 
     described the Social Security payroll tax as ``a huge 
     heartache...Is there no way to stop this `hidden' tax?...If 
     we could eliminate this unfair mandated tax, our business 
     would hire two more people.''
       A Two-Thirds Majority Vote in Congress to Raise The Tax 
     Rate. The Commission recommends that the new system be 
     guaranteed both stability and longevity by requiring a 
     supermajority vote of both houses of Congress to raise the 
     rate.
       In hearings across the country, one depressing but all-too-
     familiar response from taxpayers could be bluntly paraphrased 
     as: ``Change, schmange. That's what you guys said the last 
     time you talked about tax reform.'' The roller-coaster ride 
     of tax policy in the past few decades has fed citizens' 
     cynicism about the possibility of real, long-term reform, 
     while fueling frustration with Washington. The initial 
     optimism inspired by the low rates of the 1986 Tax Reform Act 
     soured into disillusionment and anger when taxes subsequently 
     were hiked two times in less than seven years. The commission 
     believes that a two-thirds super-majority vote of Congress 
     will earn Americans' confidence in the longevity, 
     predictability, and stability of any new tax system.
       The goal: A single low rate on income with a generous 
     personal exemption, a lower burden on working families, an 
     end to biases in the tax code--all set in the stone of a 
     congressional super-majority. The recommendations in this 
     chapter form the core framework for a new 21st century tax 
     system.


                              other issues

                       Deductions and Exclusions

       Concerns about special provisions in the existing tax code 
     have the potential to derail debate over the merits of a new 
     tax system and the tremendous benefits it could bring to the 
     American economy. There are important social and economic 
     consequences of certain deductions and exclusions. The 
     commission believes they should be considered with an eye to 
     their impact on the tax rate, the costs to the Treasury, and 
     the consequences of change--and within the context of the 
     values of the American people. For example, the home mortgage 
     interest deduction has spurred home ownership in America; an 
     important goal of our commission is to spread ownership to 
     give more people a stake in the system. And, at a time when 
     America needs a renaissance of private giving and commitment 
     to overcome those social problems which government programs 
     have either failed to improve or made worse--we need a system 
     which encourages people to take more responsibility for 
     communities and neighbors in need. We welcome debate over the 
     best way to protect these institutions and preserve the 
     values they represent within the context of the dynamic new 
     tax system we envision.
       Simplify International Taxation: Congress should consider a 
     territorial tax system. The current system of taxing 
     international business operations is one of the most 
     complicated parts of the Internal Revenue Code. It leads to 
     enormous costs of compliance and enforcement, raises little 
     revenue, and damages the competitiveness of U.S. businesses 
     operating abroad. Further, it encourages them to keep 
     reinvesting profits abroad rather than bringing the money 
     back home where it could be reinvested in America.
       Whatever new tax system is chosen, there must be a clearer, 
     simpler, and more certain determination, relative to current 
     practice, of what income is foreign or domestic or what 
     international transaction is taxable. In addition, attention 
     must be given to the proper tax treatment of foreign source 
     license fees, royalties, and other intangibles so as not to 
     discourage research and development in the United States.
       Strengthen Private Retirement Saving: The commission is 
     particularly concerned that Americans are not saving enough 
     for their own retirement. A tax system that eliminates the 
     bias against saving is essential to encourage people to 
     accumulate more assets throughout their lives. There is, 
     however, no guarantee that all individuals or families will 
     save enough to be secure and financially independent in their 
     retirement, even under a new tax system.
       With the problems facing public retirement programs, it is 
     essential that private retirement saving be strengthened. 
     Without sufficient retirement saving, many people will become 
     dependent upon the government in their old age, necessitating 
     either sharp 

[[Page E44]]
     increases in taxes on future generations or a significantly diminished 
     standard of living. Providing strong encouragement for 
     individuals and families to take responsibility for their own 
     retirement will go a long way toward preventing uncontrolled 
     growth of government while ensuring a more comfortable, more 
     secure, and more independent retirement.
       Therefore, any tax system should encourage people to save 
     for their own retirement. Further, the commission recommends 
     that Congress begin the process of policy changes that will 
     result in people taking more responsibility for their own 
     retirement saving. Other changes within the overall income 
     and payroll tax systems also should be considered.


                           measuring results

       One of the chief objectives of adopting a new tax system is 
     to promote economic growth. If we are successful, the added 
     growth will provide the tax revenues to pay for a portion of 
     the change in the tax law. Failure to count these added 
     revenues will make it appear more difficult to make the 
     necessary tax changes.
       One couldn't catch the blossoming of a role in a split-
     second single-frame exposure, or capture a speeding bullet 
     with time-lapse photography. Similarly, the tools with which 
     we anticipate and examine changes in government policies, 
     including tax policy, must mirror the way the economy 
     actually changes as a result of these actions.
       When a bill is being debated before Congress, members are 
     required to produce estimates of the costs of the 
     legislation. For years, Congress has used what are called 
     ``static revenue estimates'' to produce these figures. Static 
     revenue estimates attempt to predict future government 
     revenues by applying the new law to today's economy as though 
     it would not be affected by the new law. History has shown 
     that these estimates are limited in their ability to predict 
     revenues.
       We recommend that Congress instead use estimates that 
     measure the impact policy changes will have on people's 
     behavior and on future economic activity, and that therefore 
     more accurately predict implications for future revenue 
     collections. Use of this ``dynamic'' scoring, of course, must 
     be based upon realistic assumptions regarding tax rates, tax 
     revenues, and economic activity. It is essential to avoid 
     overly optimistic as well as overly pessimistic projections. 
     (Further details are provided in the staff discussion 
     papers.)


                           transition issues

       The defenders of the status quo will say that our 
     recommendations for a new tax system will mean a tax increase 
     on the middle class or cause a flood of red ink.
       We strongly disagree. The thinking behind our current tax 
     system is a model that does not fit tomorrow's world. 
     Complainers fail to understand the new world that this new 
     system will create. The tax reform we envision will create a 
     different climate for economic growth. It will lift incomes. 
     It will reduce interest rates. It will put people to work. It 
     will reduce the use of tax shelters. It will reduce the need 
     for social safety-net spending. It will foster millions of 
     new businesses and jobs. In the process, the transition will 
     help to pay for itself.
       That doesn't mean there will not be difficult issues to 
     address during the transition. In particular, policy makers 
     must take care to protect existing savings, investments, and 
     other assets. Whatever the challenges this change presents, 
     we believe that none of the issues is insurmountable.
       Whatever equivocations there may be toward the future, we 
     must not let them rob us of the unparalleled economic growth, 
     the unimagined opportunities for human fulfillment and 
     advancement that now lay trapped within the cage of the 
     current system, waiting for us to open the door.


                               Conclusion

       The recommendations outlined here can lay the groundwork 
     for a pro-growth, pro-family tax code for America's 21st 
     century. As construction of the new system moves forward, 
     there will be many decisions to be met and made along the 
     way. While we have tried to raise a number of those issues 
     here, and clarify others in the discussion papers, it is 
     impossible to anticipate every question that will arise as we 
     move toward a new system.
       We urge that the American people participate in this debate 
     at every step of the way. This is all the more crucial given 
     the critical nature of the transition issues involved as 
     replacement of the current system gets underway. Half a 
     century ago, the economist Joseph Schumpeter described 
     capitalism as inseparable from ``the perennial gale of 
     creative destruction.'' In the transition to a fairer system 
     and a freer market, the winds of change are bound to 
     increase. Those who have a stake in the status quo will not 
     welcome change; others may prefer the cramped confines of the 
     familiar present to the uncertainty of a yet realized future.
       If the taxpayer testimonies we listened to and letters we 
     received bear any evidence of the broader mood of the 
     country, we believe that Americans are overwhelmingly eager 
     to make that change, ready for its challenges, and look 
     forward to its opportunities.
       It has been a privilege for us to serve on this commission, 
     and each of us has taken the responsibility very seriously. 
     We have been educated and inspired by the many, many 
     Americans we have talked with. While the tax system is in 
     serious disrepair, the American spirit and will for change 
     are stronger than ever. We thank Senate Majority Leader Dole 
     and Speaker Gingrich for giving us this opportunity by 
     delegating us to do this important work.
       We quote in this report many of the citizen witnesses who 
     wrote to us and who testified at our hearing. We thank them 
     and the many expert witnesses who prepared testimony and 
     answered our many questions about the intricacies of tax 
     reform.
       We are very much indebted to the lawmakers who have spent 
     years of their careers studying tax reform, inspiring serious 
     debate on the flaws of the current system, and developing 
     proposals for major tax reform. Among them: House Majority 
     Leader Dick Armey, Ways and Means Chairman Bill Archer, 
     Senate Budget Chairman Pete Domenici, Senator Sam Nunn, Joint 
     Economic Committee Chairman Connie Mack, Senator Bob Bennett, 
     and Congressman Dick Gephardt. Others whose work has been 
     invaluable to the process include Senator Richard Shelby, 
     Senator Richard Lugar, Senator Arlen Specter, ranking Ways 
     and Means Committee member Sam Gibbons, and many others.
       It has been said that every breakthrough in human 
     understanding has come in the form of a simplification. The 
     complex, bureaucratic tax code of the 20th century will not 
     enable us to keep pace with the complex and rapidly changing 
     world of the 21st century. A simplified tax code would have 
     an instant impact on peoples' lives--freeing up time, energy 
     and resources currently wasted in costly compliance for 
     productive endeavors.
       The impact on the economy would be immediate and profound, 
     putting the goal of a doubled economic growth rate within our 
     reach. The moment the dead weight and distortions of the 
     current tax system are lifted from our economy, the explosion 
     of new investment, new businesses, and new jobs would 
     transform the economic and social landscape of our country. A 
     newly galvanized economy would create work for all those who 
     wanted it, unleash unimagined innovations, act as a magnet 
     for capital from all over the world, and boost wages and 
     living standards for America's working families.
       We also believe that a new tax code can help replenish the 
     well-springs of public trust--in our government, in each 
     other, and in ourselves. By treating citizens equally and 
     with respect, a new tax code can restore faith in the basic 
     fairness of the system. A simplified system will eliminate 
     the fear that special advantages hide in complexity, while 
     restoring citizens' confidence in their own ability to comply 
     with the code.
       This vision of the future is rooted in both a realism about 
     human nature and an idealism about human potential. We 
     recognize that a new tax code, no matter how radical, cannot 
     solve all problems. It cannot make fathers love mothers or 
     guarantee children happy homes. Government reform, however 
     vast or vaunted, cannot change hearts.
       But it can lift hopes. At its best, it does this by 
     seeking, as Lincoln did, ``to elevate the condition of men--
     to lift artificial weights from all shoulders--to clear the 
     paths of laudable pursuit for all.''
       By freeing citizens from the costly encumbrances of the 
     current tax code, by restoring the link between effort and 
     reward, by allowing individuals to save and invest in their 
     future, and by unleashing the pent up power of our economy, 
     this new system can lead to Lincoln's ``new birth of 
     freedom,'' and launch us into the next American century.


                   bias against saving and investment

       Multiple taxation creates a huge bias against saving and 
     investment that must be eliminated in a new system. Consider, 
     for example, the effect of the current system on a family in 
     the 28 percent tax bracket that earns an extra $1,000.
       Of that $1,000, they will pay $280 in federal income tax 
     and keep $720. If they spend that $720, say, taking the 
     family to Disneyland, they incur no further federal tax, no 
     matter how many times they ride the Space Mountain.
       But suppose, instead, they decide to invest the income in 
     stocks to create financial security for their future. Bad 
     move, says the current tax code.
       First, they already had to pay income taxes to have the 
     $720 to invest. Second, the company in which they invest will 
     generally pay tax at a 35 percent rate on the returns on the 
     amount invested. Third, if the company pays dividends, the 
     family will pay a 28 percent tax on the dividends they 
     receive. Alternatively, if the company retains the after tax 
     income for reinvestment or finds other ways to boost future 
     earnings, the stock price will rise. The future earnings will 
     be taxed, and if the family sells the stock, it will pay a 
     capital gains tax at a 28 percent rate (see below). Fourth, 
     if they hold the proceeds of the sale until death, they will 
     be subject to an estate tax that can go as high as 55 
     percent.
       Both the investment in the stock market and the investment 
     in the family trip produce returns--one yields warm memories 
     of the past, the other provides real hope for the future. The 
     returns on the investment in the trip are not subject to tax; 
     the returns on the investment in the stock market are. (Staff 
     discussion papers contain further information on the tax 
     code's bias against saving and investment.)

                              Biographies

       Chairman Jack Kemp is founder and current co-director of 
     Empower America, a public policy and advocacy organization. 
     Kemp 

[[Page E45]]
     served as Secretary of the U.S. Department of Housing and Urban 
     Development in the Bush Administration, and represented the 
     Buffalo, N.Y., area for 18 years in the U.S. House of 
     Representatives. He played professional football for 13 years 
     as quarterback for the San Diego Chargers and Buffalo Bills. 
     His father was a small-businessman who helped start a small 
     trucking company in and around Los Angeles, CA.
       ``If you tax something you get less of it. If you subsidize 
     something, you get more of it. The problem in America today 
     is that we are taxing work, savings, investment, and 
     productivity; and we're subsidizing debt, welfare, 
     consumption, leisure, and mediocrity.''
       Vice Chairman Edwin J. Feulner, Jr. is president of the 
     Heritage Foundation, a leading public policy group in 
     Washington, D.C. He also serves as chairman of the Institute 
     for European Defense and Strategic Studies in London. 
     Feulner, who has a Ph.D. from the University of Edinburgh, 
     served as consultant for Domestic Policy to President Reagan, 
     and was the Chairman of the U.S. Advisory Commission on 
     Public Diplomacy.
       ``Our tax code has become a complex web of penalties, 
     disincentives, loopholes, and preferences. No amount of 
     tinkering at the edges will save the system. The only answer 
     is to replace it with a new system that rewards work, saving 
     and risk-taking.''
       Loretta H. Adams, started her professional career as a 
     management trainee at the Panama City, Panama, Sears store on 
     a $25-a-week salary. Ms. Adams later immigrated to the United 
     States and went on to become founder of the San Diego-based 
     Market Development, Inc., a consumer, marketing, and opinion 
     research firm with nearly 100 employees. Since 1978, her 
     company has serviced Latin-American consumers in the United 
     States and Latin America and has become one of the top 100 
     research firms in the country.
       ``The conditions that produced the current tax system no 
     longer contribute positively to a 21st century global 
     economy. We now have the opportunity to create a tax system 
     that is more responsive to our times, situation, and needs 
     and, hopefully, we will grasp it fully.''
       J. Kenneth Blackwell lived in public housing for the first 
     seven years of his life only to later pioneer housing reforms 
     as the Deputy Undersecretary of the U.S. Department of 
     Housing and Urban Development. Today, he serves as Treasurer 
     of the State of Ohio, having previously held public office on 
     the Cincinnati City Council before becoming mayor of 
     Cincinnati. He is a member of the Council on Foreign 
     Relations in New York, and previously served as U.S. 
     Ambassador to the United Nations Human Rights Commission and 
     as vice president of Xavier University in Cincinnati.
       ``There is something fundamentally wrong with a tax system 
     that costs Americans $250 billion to comply. A simpler tax 
     system would help break the chains that currently bind 
     entrepreneurial spirit.''
       Herman Cain learned the value of hard work from his father 
     who concurrently worked three jobs--one of which was as a 
     janitor at The Pillsbury Company in Atlanta. At age 12, 
     Herman went to work with his father at Pillsbury, helping him 
     as ``assistant janitor.'' Twenty-two years later Cain would 
     become a Pillsbury vice president (computer systems) and 
     later be selected as president of the firm's then-subsidiary 
     company, Godfather's Pizza, Inc. In 1988, he successfully led 
     a group of Godfather's Pizza, Inc. senior management in 
     purchasing the chain from Pillsbury. He currently serves as 
     chairman and CEO of Godfather's Pizza, Inc. Prior to his 
     tenure at Godfather's, Cain worked for the U.S. Navy as a 
     mathematician, the Coca-Cola Company as a business analyst, 
     and was an executive with Burger King Corporation.
       ``One of America's greatest strengths is its ability to 
     change . . . our 82 year old tax `mess' is long overdue for 
     dramatic, sensible change.''
       Carroll Campbell served two, four-year terms as one of the 
     most popular and innovative governors in South Carolina's 
     history. His legacy as governor includes government reform, 
     record job expansion, net tax cuts, economic growth, and 
     investment in his state. Campbell launched his political 
     career in 1970, first serving in the state House and Senate 
     and later in the U.S. Congress, where he served on the 
     Banking, Appropriations, and Ways and Means committees. He 
     also served as chairman of the National Governors' 
     Association, the Republican Governors' Association, and the 
     Southern Governors' Association, as well as Chairman of the 
     Southern Growth Policies Board. Today he is president and CEO 
     of the American Council of Life Insurance.
       ``The tax system should encourage investment and job 
     creation, foster long-term savings, and increase the focus on 
     individual and family economic responsibility. In short, tax 
     policy should encourage long-term savings for retirement.''
       Pete du Pont, during his tenure as governor of Delaware 
     from 1977-1985, implemented a highly successful pro-growth 
     tax policy by dramatically lowering marginal tax rates, 
     causing the state's economy to boom and overall tax 
     collections to jump, and enacting a constitutional amendment 
     that limited both tax and state spending increases. He also 
     served as a state legislator and Congressman and ran as a 
     Republican candidate for President of the United States. He 
     currently serves as policy chairman of the National Center 
     for Policy Analysis, and writes a weekly column on public 
     policy that is distributed to more than four hundred 
     newspapers across the nation.
       ``The men and women who spoke to us reflected an American 
     consensus: Our tax system is destroying our opportunities. 
     It's time to replace it.''
       Jack Faris started working at age 13 earning 50 cents an 
     hour at his parent's service station. Faris learned early in 
     life the challenges of running a small family business and 
     the importance of hard work. After running his own business 
     in Nashville, Tennessee, he became president and CEO of the 
     National Federation of Independent Business (NFIB), the 
     nation's largest small business advocacy organization with 
     more than 600,000 members.
       ``Regulation and taxes are strangling small business on 
     main street. Give us relief and we will create the jobs and 
     build America's future for our children and grandchildren.''
       Matt Fong serves as Treasurer of the State of California. 
     Prior to his election, Fong served as Vice Chairman of the 
     State Board of Equalization, California's tax agency. Fong 
     streamlined the agency, cutting millions of dollars of waste, 
     reformed the state's tax code sponsoring changes to the 
     unitary tax, and made the agency more ``taxpayer friendly.'' 
     A graduate of the U.S. Air Force Academy currently holding 
     the rank of Lt. Col. USAFR, he earned an MBA and law degree, 
     started a small business, and worked for Sheppard, Mullin, 
     Richtor and Hampton as a transactional corporate attorney.
       ``Too many Americans are sitting on the economic sidelines. 
     A progressive single rate flat tax will radically jump start 
     job creation, moving the unemployed off the sidelines to 
     jobs.''
       Theodore J. Forstmann is one of the most admired 
     entrepreneurs in America with an unrivaled record of 
     successful investments. Forstmann splits his time between 
     running his firm, speaking out on behalf of economic 
     opportunity and growth, and helping children worldwide. He 
     has poured his energies and resources into leading relief 
     efforts in Bosnia, sponsoring charities in South Africa, and 
     funding scholarships and teaching students in America's inner 
     cities. He is the senior partner of Forstmann Little & Co.
       ``The current tax system is ridiculously complicated, 
     economically destructive, and morally corrosive. We 
     desperately need a new tax code that puts the individual--not 
     government--at the center of the equation.''
       Dean Kleckner took over the rented family farm in Iowa at 
     the age of 18 when his father died. Kleckner served in the 
     Army and later returned to Iowa where he started on his own 
     with a dozen sows, a dozen cows and 300 chickens. Today he 
     owns a 350-acre corn, soybean, and hog farm, and serves as 
     President of the American Farm Bureau Federation, a post he 
     has held since 1986. He also serves on the U.S. Advisory 
     Committee on Trade Policy, a post to which he was first 
     appointed by President Reagan, and reappointed by Presidents 
     Bush and Clinton.
       ``Our tax system must be simple and equitable for all 
     taxpayers, with no loopholes. It has to let hard-working 
     taxpayers keep more of the money they have earned.''
       Shirley Peterson is president of Hood College in Frederick, 
     Maryland. Prior to assuming the college presidency, she 
     practiced tax law and also served as Commissioner of Internal 
     Revenue under President Bush and Assistant Attorney General 
     (Tax Division) at the U.S. Justice Department under President 
     Bush. She was raised on a farm in Colorado.
       ``Citizens from around the country told us that the current 
     law is too complex: This complexity breeds disrespect for the 
     law and for our government. It is time to repeal the Internal 
     Revenue Code and start over.''
       John Snow worked his way through college as a sports coach. 
     Today he serves as chairman, president, and CEO of CSX 
     Corporation in Richmond, Virginia, and has been with the 
     company since 1977. Snow, who has a Ph.D. in economics from 
     the University of Virginia and a law degree from George 
     Washington University, also served as Deputy Undersecretary 
     of the U.S. Department of Transportation, as a private 
     attorney and a college professor.
       ``The current tax system dims our prospects for the future 
     and must be replaced by a new system for the 21st century 
     which helps Americans to capitalize on opportunities--not 
     stifle economic growth and entrepreneurial activity.''
       John Wieland always worked part-time growing up, from 
     working at a gas station to delivering newspapers to stocking 
     vending machines. Today, he is a president of John Wieland 
     Homes, Inc., of Atlanta, employing more than 700 full-time 
     employees and thousands of subcontractors. For Wieland, 
     success has meant the ability to give back to his community 
     by providing housing for the working poor and working with 
     Habitat for Humanity, formerly serving as a member of the 
     International Board of Habitat.
       ``The consensus of the American people demands a completely 
     new, simple, and fair tax code. Increased prosperity for ALL 
     will be the outcome. The time is now.''

                              The Tax Test


                        six points of principle

       (1) Economic growth through incentives to work, save, and 
     invest
       (2) Fairness for all taxpayers
       (3) Simplicity so that anyone can figure it out
       (4) Neutrality that lets people and not government make 
     choices
       (5) Visibility to let people know the cost of government 
       
[[Page E46]]

       (6) Stability so people can plan for the future


                          six points of policy

       (1) A single tax rate
       (2) A generous personal exemption to remove the burden on 
     those least able to pay
       (3) Lower tax rates for America's families
       (4) Payroll tax deductibility for workers
       (5) Ending biases against work, saving, and investment
       (6) Making the new tax system hard to change

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