[Congressional Record Volume 146, Number 42 (Thursday, April 6, 2000)]
[House]
[Pages H1950-H1953]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CONTINUED DIALOGUE ON TAX RELIEF AND TAX REFORM
The SPEAKER pro tempore (Mr. Thune). Under the Speaker's announced
policy of January 6, 1999, the gentleman from Pennsylvania (Mr.
English) is recognized for the balance of the 60 minutes as the
designee of the majority leader.
Mr. ENGLISH. Mr. Speaker, after concluding opening remarks, I will be
yielding to the gentleman from Georgia (Mr. Linder) who has some very
interesting ideas to outline for us.
Mr. Speaker, I was struck by the tenor of my colleague's comments,
the gentleman from Ohio (Mr. Portman), who laid out a bill of
particulars of what this Congress has done to make this Tax Code much
more pro working family. But at the same time, we need to recognize
that more needs to be done, and it is time for Congress to move in the
direction of fundamental structural tax reform.
Next week, as the gentleman from Ohio noted, the House Committee on
Ways and Means will be sponsoring a tax reform summit where many of the
ideas of alternatives to the current tax system will be outlined. I
have one that I intend to outline tonight, but let me say that the
gentleman from Georgia (Mr. Linder), myself, and the gentleman from
Ohio (Mr. Portman) share a common perspective which I believe is why we
feel we need to move forward quickly on this subject and begin to
define alternatives to the current tax system.
The American tax system looms like a Frankenstein's monster that
terrorizes individual taxpayers while casting a cold shadow over the
productive sectors of the U.S. economy. It is too complicated and
riddled with obvious inequities, it punishes savings and investment, it
reduces economic growth, and it burdens domestic industries struggling
to remain competitive.
We in Congress cannot complacently sit back and watch as this
complicated, antiquated tax system erodes our Nation's confidence in
its economy. We must reform the American tax system in a way that makes
sense to average citizens and that, therefore, will pass the test of
time. Because not only do we need a fair and sensible Tax Code, we need
a stable one.
As bad as the current Tax Code is, and I am one of its severest
critics, in my view the last thing we need to enact is some reform that
is so radical and experimental that it results in an irresistible
demand to redo it again a few years later. The simplified USA Tax Act
that I have introduced does all of that and more. H.R. 134 is based on
sound and familiar principles that we all understand and we know will
work.
The Tax Code, Mr. Speaker, must give Americans a fair opportunity to
save part of their earnings. After all, thrift has helped provide
Americans the security and independence that is the foundation of
freedom. We understand that savings is the seed corn of the modern
economy. Savings buys the tools to make Americans more productive.
Productivity raises our living standards to the highest in the world.
In my tax reform proposal, USA stands for unlimited savings
allowance. Everyone is allowed an unlimited Roth IRA in which they can
put the portion of each year's income they save after paying taxes and
living expenses. After 5 years, all money in the account could be
withdrawn for any purpose, and all withdrawals, including accumulated
interest and other earnings and principal, are tax free. Nothing can be
simpler and nothing could give the people a better opportunity to save,
especially young people. Because only new income earned after enactment
of the simplified USA tax can be put into the USA Roth IRA, young
people starting to move into their higher earning years are the ones
who will benefit the most in the long run.
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The Tax Code must also give everyone the opportunity to keep what
they save and, if they wish, to pass it along to succeeding
generations.
To that end, my tax reform proposal repeals the Federal death tax.
Under the new Tax Code, tax rates must be low, especially for wage
earners who now must pay an income tax and a 7.65 percent FICA payroll
tax on the same amount of wages. The simplified USA tax starts out with
low tax rates, 15 percent at the bottom, 25 percent in the middle, and
30 percent at the top.
Then the rates are reduced even further by allowing wage earners a
full tax credit for the 7.65 percent Social Security and Medicare
payroll tax that is withheld from their paychecks under current law.
Mr. Speaker, I do not propose to repeal the payroll tax, because to
do so would imperil Social Security. But I do allow a credit for it;
and when the credit is taken into account, the rates of tax on workers
wages are very low, indeed, in the 7 percent to 17 percent range, for
nearly all Americans.
The simplified USA tax provides tax relief for all Americans,
especially those who own their home, give to their church, educate
their children, and set aside some money for a better tomorrow.
Under my proposal, everyone receives a deduction for the mortgage
interest on their home and for charitable contributions that they
choose to make. In addition, USA tax allows a deduction for tuition
paid for college and postsecondary vocational education.
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This type of incentive is relatively new, and given the importance of
education, long overdue to encourage investment in human capital.
Generous personal and family exemptions are also allowed under my
proposal. On a joint return, the family exemption is $8,140; and there
is an additional 2,700 exemption for each member of the family. Thus a
married couple with two children pays no tax on their first $18,940 of
income.
The simplified USA tax is just that, simple, 75 percent simplier than
the current Tax Code by one estimate. The tax return will be short,
only a page or two for most of us; but more to the point, the tax
return will be understandable.
For the first time in many years, America's tax system will make
sense to the citizens who file the tax returns and pay the taxes. And
for the first time since inception of the Federal income tax, Americans
will have a full and fair opportunity to save whatever proportion of
their income they wish and for whatever purpose they wish.
Working families will be allowed a credit for the payroll tax they
pay. Families will have generous taxfree allowance for the education of
their children. My proposal, Mr. Speaker, also contains a new and
better way of taxing corporations and other businesses and this is
something that every worker in the international economy has stake in.
It allows them to compete and win in global markets in a way that
exports American-made products, not American jobs.
Experts who have studied my plan believe that if enacted in America,
this innovative approach to business taxation will soon become the
worldwide standard to which other countries aspire. All businesses,
corporate and noncorporate, are taxed alike under my plan at an 8
percent rate on the first $150,000 of profit and at 12 percent on all
amounts above that, small business level.
All businesses will be allowed a credit for the payroll tax they pay
under current law. All costs for plant, equipment, and inventory in the
United States will be expensed into the year of purchase. This is a
critical reform that will allow capital formation in those businesses
competing in the international economy that most need it.
This is an important point, Mr. Speaker. All export sales income is
exempt, as is all other foreign source income. All profits earned
abroad can be brought back home for reinvestment in America without
penalty. Because of a 12 percent import adjustment, all companies that
produce abroad and sell back in the U.S. markets will be required to
bear the same tax as companies that both produce and sell in the U.S.
Mr. Speaker, I hope to push forward a bipartisan effort with the
simplified version of the USA tax. I invite all of my colleagues in the
House to join me in an effort to provide the American people the fair
and sensible tax system they deserve.
Mr. Speaker, for too long the Tax Code has been a terrible drag on
our economy that is not very smart and certainly is not fair to those
Americans whose living standards are lower now because of it. For
years, its complex inanities have been the object of ridicule. It is
also the ultimate source of bureaucratic excesses and abuse by the IRS
that is inconsistent with our free society.
In my view, it is high time we restore people's faith in the
integrity and basic fairness of their tax system and in the process,
take a major step toward restoring people's confidence in the good
character of their government.
Mr. Speaker, we believe that these are priorities worth pursuing, and
I believe that this plan is one that can push us in the right
direction.
To hear about another plan, the fair tax plan, I would like to yield
such time as he may consume to the prime sponsor of that bill, the
gentleman from Georgia (Mr. Linder), who we expect will outline a
challenging alternative to the proposal I have just laid before us.
Mr. LINDER. Mr. Speaker, I thank the gentleman from Pennsylvania (Mr.
English) for yielding, and I thank the gentleman from Erie for his plan
and the gentleman from Cincinnati (Mr. Portman) for arranging a special
order.
Let me say, Mr. Speaker, before I get into my plan, that any one of
these proposals is better than the current system. What we have learned
after 86 years of the current system, if we had sat down at the
beginning in 1913 and said how can we build a tax system that will
punish people for working hard and earning, that will be obstructive of
capital formation, we could not have done a better job than we have
done here.
Our tax system is the single biggest impediment to people reaching
from the first rung of the economic ladder to the second, because the
harder you work, the more you save, the more you invest, the more we
take. It is a system that is inefficient. We have seen testimony from
the Kemp Commission to Harvard studies that say for a small businessman
or woman to comply with the code, collect and remit $1 in business
income taxes, it costs them anywhere from $4 to $7 to do that.
It is un-understandable. Our own IRS tells us that if you call the
IRS for help filling out your own tax return for an answer to a
question, 25 percent of the answers they give you are in error. Money
Magazine sent the same data to 49 different tax preparers for a
hypothetical family and found 49 different tax returns varying by
thousands of dollars.
We should get away from the notion of taxing what people put into
society, their productivity, their job creation, their work, and tax
what they take out of it, their consumption.
When you think about it, there is no way for a business in America to
pay a tax. There is not a mechanism for it. If you have a business, and
I have had several, there is not a secret drawer where the money piles
up, where you find your share of the payroll tax.
There is not another secret drawer where the money piles up, where
you pay your income tax from.
It all comes out of price, as well as your electric bill and labor
cost, but it is all in price. If you have a loaf of bread, a farmer has
touched it, a trucking company, a processing company, a bakery, a
distribution company, a retail outlet, not to mention the cardboard
manufacturers and the plastics people. All of them have tax costs,
payroll tax costs, income tax costs, accountants and attorneys to avoid
the tax codes. All of that gets put into the price of that loaf of
bread.
And we think, from the study we have done at Harvard, that it is 22
percent. On average what you pay at retail is 22 percent inflated by
the embedded cost to the IRS. How do you fix that? You get rid of the
IRS. Get rid of the income tax on both corporate and individuals, get
rid of the payroll tax which is the largest tax that three-fourths of
America pays. Three-fourths of us pay more for Social Security and
Medicare than we do in income taxes.
Get rid of the death tax, the capital gains tax, the tax on
dividends, the gift tax; and replace it with a one-time retail sales
tax. If you spend $100, the first $23 goes to Uncle Sam, the rest goes
to the merchant. Currently, $22 is going to the embedded costs to the
IRS.
Our numbers show that as of 1995 that we are bringing the same amount
of money as the current system. Now, what will this do in the world?
You will have a percent higher cost of living, but you get to keep your
whole check. If you are an average income earner in America at 28
percent withholding level, 28 percent income tax withholding and 7.65
percent is your share of the payroll tax costs, your employer pays an
equal amount for you, you will have a 56 percent increase in take-home
pay the next day. You can afford the penny.
What happens in the world? If we are the only Nation in the world
selling into the global economy with no tax component in our prices are
we going to be more competitive? If a corporation finds more value in
equity than debt, today there is more value in debt, because if you
borrow money, you get to deduct the entire interest costs.
If you have equity, shareholders, you pay tax on the profits; and
when you give it to them as dividends, they pay tax one more time. And
if they sell stuff, they pay tax on the capital gain. Under our system,
with no taxes on business, no taxes on investment, there would be fewer
people in the borrowing markets and the interest rates will go down 25
percent across the board for school loans, homes, cars.
If you are at an international corporation like Coca-Cola from my
hometown with sales across the globe and
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dollars stranded overseas because it is cheaper to borrow here at 8
percent than to repatriate those dollars at 35 percent. All of those
dollars come home. The plant gets built in this country, foreign
companies find it attractive to build a plant in this country, because
there is no tax consequences.
Every investor in the world will be in on our stock markets because
there is no tax consequence. The markets go up. Who is opposed to this?
Not CPAs. You think CPAs like this system? They are at risk every time
they sign a tax return.
We have not even promulgated the rule for some of the tax changes
that we have. CPAs can make far more money planning the future for
their clients, the growth of the business, the financing of that
growth, than they can recording the past. This town does not like the
bill. It will be the largest transfer of power from Washington to
individuals in the history of our government. We know too much about
you. We would give that away.
There are 100,000 people at the IRS that know more about me than I am
willing to tell my children, and I want them out of my life and yours.
These are not bad people. These are people doing the job that this
Congress by statute has directed them to do, but we should not have any
agency of government that knows how you make money or how much you make
or how you spend it. That should be none of our business.
Unlike the simple tax return that you heard from my friend from Erie
talk about, my tax return is nonexistent. You never, ever keep a
receipt or a record or file a tax return. Now, people will say this is
hurtful on the poor, because they spend all of their money for living,
to which my response is this: they are already paying a 22 percent cost
to the IRS in everything they buy.
We are going to get rid of that. But beyond that, we do not believe
anybody should pay tax on necessities. Every year the Department of
Health and Human Services says that a household of one needs to spend,
last year it was $8,500, with my tax included, to pay for their
necessities. My mother in an apartment in Minnesota can pay for her
health care, housing, food, clothing for $8,500 dollars, that is called
poverty living; but that is what HHS says you can get by in your
necessities. My daughter and my son-in-law and three grandsons in
Memphis need to spend $25,000 for their necessities.
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Our rebate will totally return to them on a monthly basis the total
tax consequences of spending up to the poverty line. So no family, rich
or poor, has to pay taxes on their necessities. Beyond that, we are all
discretionary spenders. We should all pay the same. Just imagine a
world in which you are a voluntary taxpayer. We do not have to pass
bills like we have done and the gentleman from Erie, we worked on a
bill to make the IRS more friendly because it was a huge adversarial
relationship with our taxpayers. We do not need that because you are
going to be a voluntary taxpayer. You are going to pay taxes exactly
when you choose to pay them and exactly as much as you choose to pay
them. If you want to buy a used house instead of a new one or a used
car instead of a new one, no taxes. Only new things for personal
consumption, personal use. Because we believe that a house already has
a 30 percent embedded cost of the IRS in it and you should only pay
taxes on anything one time.
I want you to have the privilege in a free society of being anonymous
again. We should not know as much about you as we do. We should not
have anybody who can look into your records and know your history. I
think the privilege of anonymity is the single greatest gift a free
society can give its citizens.
Let me further say this: We have built a tax system that every time
the government wants more of your money, we promise you it is only
going to increase the taxes on the top 1 percent. Remember 1990? Do you
remember 1993? It is only going to increase the taxes on the top 1
percent. So 99 percent say, Go get them. Fine with me. It's not going
to hurt me.
Guess what? We all pay. In 1990, when President Bush agreed to a tax
increase on the top 1 percent, the top 1 percent paid $106 billion in
taxes. In 1991 after the tax was increased, they paid $100 billion in
taxes.
Guess what? Rich people are often smart people and they find ways to
change the way they get their income. They can control it and reduce
their obligation. I do not blame them. I want the next tax increase to
be so important that we all pay, including my mother on that loaf of
bread. We all ought to be involved in this.
Russell Long when he was chairman of the Senate Finance Committee had
a wonderful saying. He said, ``Don't tax him and don't tax me but tax
that man behind the tree.'' And we are all willing to do that. But what
we find out is it comes back through the system and we all pay at the
checkout line at retail.
So let us be honest about it. Let us have a transparent, frank,
obvious tax at retail that we all know how much our government is
costing us and we all pay equally. This bill totally untaxes the poor.
It untaxes necessities, and it treats everybody else exactly the same.
It gives us a world in which investment is attractive, consumption is
not. It gives us a world where we are all treated equally.
I want to remind you what was said in 1913 when they passed the 16th
amendment to allow the income tax. A Senator was ridiculed so bad that
he was laughed off the floor of the Senate for saying something that
was absolutely outrageous to the rest of the Senators. He said this:
``Mark my words, before this is over, the government is going to be
taking 10 percent of everything we earn.'' Oh, how I wish it were so.
That gave fresh meaning to my favorite country and western song: ``If
10 Percent's Enough for Jesus, It Ought to Be Enough for Uncle Sam.''
Mr. ENGLISH. I thank the gentleman, and I appreciate his contribution
to this debate. He has laid out for us the vista of a very different
tax system and one that I believe would potentially have a great impact
on the American economy. One of the areas of similarity between his
plan and my plan, I note, is the fact that he on the business side
offers a border adjustable tax.
Before I slip into the jargon, what I mean by that is we would take
the taxes off of exports and put a fair tax on imports. Now, I have
been very concerned, Mr. Speaker, about our trade balance in this
country. I have been very concerned about the competitiveness of
American jobs. I have been very involved in working with the steel
industry to address the problem of steel imports.
One of the proposals that always does not seem to get a full focus
when we discuss these things is the fact that by changing our tax
system, we could improve the competitive position of our economy and
potentially the balance of trade. The tax system that the gentleman
just outlined would not tax job creation in basic industry and it would
allow us to export tax free.
My tax system has many of the same incentives and would allow us to
grow capital intensive jobs. I look forward to hearing more about the
gentleman's tax system next week when we discuss it in the House
Committee on Ways and Means as part of our tax summit. I am also
looking forward to the opportunity to discuss with colleagues on both
sides of the aisle in our committee the merits of my tax proposal which
I conceive to be a hybrid between a simplified income tax and a
consumption tax. It has many of the same incentives of a consumption
tax and yet addresses many of the equity issues that I believe concern
Americans and concern their elected representatives.
I am hopeful that we can attract bipartisan support for real tax
reform. In the interim, I am pleased that Republicans have chosen to
move forward and to raise this issue and consider how we can simplify
the tax code to the benefit of individual taxpayers and certainly to
the benefit of the economy.
One parting shot. It really frightens me when I see estimates that
suggest that the cost of the current tax system to our economy is
somewhere upward of $300 billion annually. That is a dead loss to our
economy. It comes through complexity, it comes through the cost of the
system itself, it comes through bad decisions that people make because
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of the tax code and its perverse incentives. We need to change the tax
system if we are going to leave this century the way we have entered it
with the most productive economy and the preeminent economy in the
world.
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