[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.

                              {time}  1715

  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.

[[Page H1951]]

  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

[[Page H1952]]

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.

                              {time}  1730

  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

[[Page H1953]]

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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