[Congressional Record Volume 151, Number 69 (Monday, May 23, 2005)]
[Senate]
[Pages S5782-S5784]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SHELBY:
  S. 1099. A bill to repeal the current Internal Revenue Code and 
replace it with a flat tax, thereby guaranteeing economic growth and 
greater fairness for all Americans; to the Committee on Finance.
  Mr. SHELBY. Mr. President, I rise today to once again introduce my 
flat tax bill, S. 1099 the ``Tax Simplification Act of 2005.'' The 
President has made fundamental tax reform a top priority for his second 
term. I believe my bill offers that fundamental tax reform and will 
drastically improve our Nation's economy and the way Americans go about 
the business of paying taxes. This bill would repeal the current 
Internal Revenue Code and create a single rate for all taxpayers--
seventeen percent when the tax is fully implemented--and gives tax-free 
treatment to all savings and investment, not just dividends.
  A major reason why I support a flat tax is because it wil1 place more 
money into the hands of hardworking Americans. It will allow 
individuals--not the government--to decide how to best spend their 
money. Lowering taxes allows Americans to keep more of their money to 
keep up with monthly expenses like, insurance coverage, educational 
costs, and prescription drugs. Lowering taxes also makes it easier for 
Americans to save for their retirement through private savings plans. 
Although I strongly believe in the importance of private savings, my 
bill leaves the Social Security system intact and, in fact, provides 
seniors with more money by repealing the current tax on Social Security 
benefits.
  I have said many times before that our current progressive tax system 
is unfair. It punishes success and stymies economic growth. The only 
way we can remedy this is to adopt a single tax rate for all taxpayers. 
Transitioning to a flat tax will not only increase the fairness of the 
tax code, but it will also increase the incentives to work and thus 
boost economic growth.
  Today our tax code and its regulations total more than 60,000 pages 
which are complex, confusing and costly to comply with. Were a flat tax 
in place now, taxpayers would file a return the size of a postcard, and 
every American would be taxed equally and at the same rate. Rather than 
spending hours poring over convoluted IRS forms, or resorting to 
professional tax assistance, the flat tax allows taxpayers to determine 
their taxes quickly and easily. Everyone will fill out the same simple 
return, everyone will be taxed at the same rate, and everyone will pay 
their fare share. Paying taxes may never be a pleasant experience, but 
at least under a flat tax it wouldn't be mind-boggling.
  I fully realize that the bill I am introducing today is a monumental 
shift from the current tax code, but the time is ripe for fundamental 
tax reform. We must not allow the enormity of the task to deter us from 
enacting better, more efficient tax laws. I therefore urge my 
colleagues to join me in support of this legislation.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1099

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Tax 
     Simplification Act of 2005''.
       (b) Table of Contents.--
Sec. 1. Short title; table of contents.

               TITLE I--TAX REDUCTION AND SIMPLIFICATION

Sec. 101. Individual income tax.
Sec. 102. Tax on business activities.
Sec. 103. Simplification of rules relating to qualified retirement 
              plans.
Sec. 104. Repeal of alternative minimum tax.
Sec. 105. Repeal of credits.
Sec. 106. Repeal of estate and gift taxes and obsolete income tax 
              provisions.
Sec. 107. Effective date.

            TITLE II--SUPERMAJORITY REQUIRED FOR TAX CHANGES

Sec. 201. Supermajority required.

               TITLE I--TAX REDUCTION AND SIMPLIFICATION

     SEC. 101. INDIVIDUAL INCOME TAX.

       (a) In General.--Section 1 of the Internal Revenue Code of 
     1986 is amended to read as follows:

     ``SECTION 1. TAX IMPOSED.

       ``There is hereby imposed on the taxable income of every 
     individual a tax equal to 19 percent (17 percent in the case 
     of taxable years beginning after December 31, 2007) of the 
     taxable income of such individual for such taxable year.''.
       (b) Taxable Income.--Section 63 of such Code is amended to 
     read as follows:

     ``SEC. 63. TAXABLE INCOME.

       ``(a) In General.--For purposes of this subtitle, the term 
     `taxable income' means the excess of--
       ``(1) the sum of--
       ``(A) wages (as defined in section 3121(a) without regard 
     to paragraph (1) thereof) which are paid in cash and which 
     are received during the taxable year for services performed 
     in the United States,

[[Page S5783]]

       ``(B) retirement distributions which are includible in 
     gross income for such taxable year, plus
       ``(C) amounts received under any law of the United States 
     or of any State which is in the nature of unemployment 
     compensation, over
       ``(2) the standard deduction.
       ``(b) Standard Deduction.--
       ``(1) In general.--For purposes of this subtitle, the term 
     `standard deduction' means the sum of--
       ``(A) the basic standard deduction, plus
       ``(B) the additional standard deduction.
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) $25,580 in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $16,330 in the case of a head of household (as 
     defined in section 2(b)), and
       ``(C) $12,790 in the case of an individual--
       ``(i) who is not married and who is not a surviving spouse 
     or head of household, or
       ``(ii) who is a married individual filing a separate 
     return.
       ``(3) Additional standard deduction.--For purposes of 
     paragraph (1), the additional standard deduction is $5,510 
     for each dependent (as defined in section 152) who is 
     described in section 151(c) for the taxable year and who is 
     not required to file a return for such taxable year.
       ``(c) Retirement Distributions.--For purposes of subsection 
     (a), the term `retirement distribution' means any 
     distribution from--
       ``(1) a plan described in section 401(a) which includes a 
     trust exempt from tax under section 501(a),
       ``(2) an annuity plan described in section 403(a),
       ``(3) an annuity contract described in section 403(b),
       ``(4) an individual retirement account described in section 
     408(a),
       ``(5) an individual retirement annuity described in section 
     408(b),
       ``(6) an eligible deferred compensation plan (as defined in 
     section 457),
       ``(7) a governmental plan (as defined in section 414(d)), 
     or
       ``(8) a trust described in section 501(c)(18).

     Such term includes any plan, contract, account, annuity, or 
     trust which, at any time, has been determined by the 
     Secretary to be such a plan, contract, account, annuity, or 
     trust.
       ``(d) Income of Certain Children.--For purposes of this 
     subtitle--
       ``(1) an individual's taxable income shall include the 
     taxable income of each dependent child of such individual who 
     has not attained age 14 as of the close of such taxable year, 
     and
       ``(2) such dependent child shall have no liability for tax 
     imposed by section 1 with respect to such income and shall 
     not be required to file a return for such taxable year.
       ``(e) Inflation Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning in a calendar year after 2006, each dollar amount 
     contained in subsection (b) shall be increased by an amount 
     determined by the Secretary to be equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment for such calendar year.
       ``(2) Cost-of-living adjustment.--For purposes of paragraph 
     (1), the cost-of-living adjustment for any calendar year is 
     the percentage (if any) by which--
       ``(A) the CPI for the preceding calendar year, exceeds
       ``(B) the CPI for the calendar year 2005.
       ``(3) CPI for any calendar year.--For purposes of paragraph 
     (2), the CPI for any calendar year is the average of the 
     Consumer Price Index as of the close of the 12-month period 
     ending on August 31 of such calendar year.
       ``(4) Consumer price index.--For purposes of paragraph (3), 
     the term `Consumer Price Index' means the last Consumer Price 
     Index for all-urban consumers published by the Department of 
     Labor. For purposes of the preceding sentence, the revision 
     of the Consumer Price Index which is most consistent with the 
     Consumer Price Index for calendar year 1986 shall be used.
       ``(5) Rounding.--If any increase determined under paragraph 
     (1) is not a multiple of $10, such increase shall be rounded 
     to the next highest multiple of $10.
       ``(f) Marital Status.--For purposes of this section, 
     marital status shall be determined under section 7703.''.

     SEC. 102. TAX ON BUSINESS ACTIVITIES.

       (a) In General.--Section 11 of the Internal Revenue Code of 
     1986 (relating to tax imposed on corporations) is amended to 
     read as follows:

     ``SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.

       ``(a) Tax Imposed.--There is hereby imposed on every person 
     engaged in a business activity a tax equal to 19 percent (17 
     percent in the case of taxable years beginning after December 
     31, 2007) of the business taxable income of such person.
       ``(b) Liability for Tax.--The tax imposed by this section 
     shall be paid by the person engaged in the business activity, 
     whether such person is an individual, partnership, 
     corporation, or otherwise.
       ``(c) Business Taxable Income.--For purposes of this 
     section--
       ``(1) In general.--The term `business taxable income' means 
     gross active income reduced by the deductions specified in 
     subsection (d).
       ``(2) Gross active income.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `gross active income' means gross receipts from--
       ``(i) the sale or exchange of property or services in the 
     United States by any person in connection with a business 
     activity, and
       ``(ii) the export of property or services from the United 
     States in connection with a business activity.
       ``(B) Exchanges.--For purposes of this section, the amount 
     treated as gross receipts from the exchange of property or 
     services is the fair market value of the property or services 
     received, plus any money received.
       ``(C) Coordination with special rules for financial 
     services, etc.--Except as provided in subsection (e)--
       ``(i) the term `property' does not include money or any 
     financial instrument, and
       ``(ii) the term `services' does not include financial 
     services.
       ``(3) Exemption from tax for activities of governmental 
     entities and tax-exempt organizations.--For purposes of this 
     section, the term `business activity' does not include any 
     activity of a governmental entity or of any other 
     organization which is exempt from tax under this chapter.
       ``(d) Deductions.--
       ``(1) In general.--The deductions specified in this 
     subsection are--
       ``(A) the cost of business inputs for the business 
     activity,
       ``(B) wages (as defined in section 3121(a) without regard 
     to paragraph (1) thereof) which are paid in cash for services 
     performed in the United States as an employee, and
       ``(C) retirement contributions to or under any plan or 
     arrangement which makes retirement distributions (as defined 
     in section 63(c)) for the benefit of such employees to the 
     extent such contributions are allowed as a deduction under 
     section 404.
       ``(2) Business inputs.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `cost of business inputs' means--
       ``(i) the amount paid for property sold or used in 
     connection with a business activity,
       ``(ii) the amount paid for services (other than for the 
     services of employees, including fringe benefits paid by 
     reason of such services) in connection with a business 
     activity, and
       ``(iii) any excise tax, sales tax, customs duty, or other 
     separately stated levy imposed by a Federal, State, or local 
     government on the purchase of property or services which are 
     for use in connection with a business activity.

     Such term shall not include any tax imposed by chapter 2 or 
     21.
       ``(B) Exceptions.--Such term shall not include--
       ``(i) items described in subparagraphs (B) and (C) of 
     paragraph (1), and
       ``(ii) items for personal use not in connection with any 
     business activity.
       ``(C) Exchanges.--For purposes of this section, the amount 
     treated as paid in connection with the exchange of property 
     or services is the fair market value of the property or 
     services exchanged, plus any money paid.
       ``(e) Special Rules for Financial Inter-mediation Service 
     Activities.--In the case of the business activity of 
     providing financial intermediation services, the taxable 
     income from such activity shall be equal to the value of the 
     intermediation services provided in such activity.
       ``(f) Exception for Services Performed as Employee.--For 
     purposes of this section, the term `business activity' does 
     not include the performance of services by an employee for 
     the employee's employer.
       ``(g) Carryover of Credit-Equivalent of Excess 
     Deductions.--
       ``(1) In general.--If the aggregate deductions for any 
     taxable year exceed the gross active income for such taxable 
     year, the credit-equivalent of such excess shall be allowed 
     as a credit against the tax imposed by this section for the 
     following taxable year.
       ``(2) Credit-equivalent of excess deductions.--For purposes 
     of paragraph (1), the credit-equivalent of the excess 
     described in paragraph (1) for any taxable year is an amount 
     equal to--
       ``(A) the sum of--
       ``(i) such excess, plus
       ``(ii) the product of such excess and the 3-month Treasury 
     rate for the last month of such taxable year, multiplied by
       ``(B) the rate of the tax imposed by subsection (a) for 
     such taxable year.
       ``(3) Carryover of unused credit.--If the credit allowable 
     for any taxable year by reason of this subsection exceeds the 
     tax imposed by this section for such year, then (in lieu of 
     treating such excess as an overpayment) the sum of--
       ``(A) such excess, plus
       ``(B) the product of such excess and the 3-month Treasury 
     rate for the last month of such taxable year, shall be 
     allowed as a credit against the tax imposed by this section 
     for the following taxable year.
       ``(4) 3-month treasury rate.--For purposes of this 
     subsection, the 3-month Treasury rate is the rate determined 
     by the Secretary based on the average market yield (during 
     any 1-month period selected by the Secretary and ending in 
     the calendar month in which the determination is made) on 
     outstanding marketable obligations of the United States with 
     remaining periods to maturity of 3 months or less.''.
       (b) Tax on Tax-Exempt Entities Providing Noncash 
     Compensation to Employees.--Section 4977 of such Code is 
     amended to read as follows:

[[Page S5784]]

     ``SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED TO 
                   EMPLOYEES NOT ENGAGED IN BUSINESS ACTIVITY.

       ``(a) Imposition of Tax.--There is hereby imposed a tax 
     equal to 19 percent (17 percent in the case of calendar years 
     beginning after December 31, 2007) of the value of excludable 
     compensation provided during the calendar year by an employer 
     for the benefit of employees to whom this section applies.
       ``(b) Liability for Tax.--The tax imposed by this section 
     shall be paid by the employer.
       ``(c) Excludable Compensation.--For purposes of subsection 
     (a), the term `excludable compensation' means any 
     remuneration for services performed as an employee other 
     than--
       ``(1) wages (as defined in section 3121(a) without regard 
     to paragraph (1) thereof) which are paid in cash,
       ``(2) remuneration for services performed outside the 
     United States, and
       ``(3) retirement contributions to or under any plan or 
     arrangement which makes retirement distributions (as defined 
     in section 63(c)).
       ``(d) Employees to Whom Section Applies.--This section 
     shall apply to an employee who is employed in any activity 
     by--
       ``(1) any organization which is exempt from taxation under 
     this chapter, or
       ``(2) any agency or instrumentality of the United States, 
     any State or political subdivision of a State, or the 
     District of Columbia.''.

     SEC. 103. SIMPLIFICATION OF RULES RELATING TO QUALIFIED 
                   RETIREMENT PLANS.

       (a) In General.--The following provisions of the Internal 
     Revenue Code of 1986 are hereby repealed:
       (1) Nondiscrimination rules.--
       (A) Paragraphs (4) and (5) of section 401(a) (relating to 
     nondiscrimination requirements).
       (B) Sections 401(a)(10)(B) and 416 (relating to top heavy 
     plans).
       (C) Section 401(a)(17) (relating to compensation limit).
       (D) Sections 401(a)(26) and 410(b) (relating to minimum 
     participation and coverage requirements).
       (E) Paragraphs (3), (8), (11), and (12) of sections 401(k), 
     and section 4979, (relating to actual deferral percentage).
       (F) Section 401(l) (relating to permitted disparity in plan 
     contributions or benefits).
       (G) Section 401(m) (relating to nondiscrimination test for 
     matching contributions and employee contributions).
       (H) Paragraphs (1)(D) and (12) of section 403(b) (relating 
     to nondiscrimination requirements).
       (I) Paragraph (3) of section 408(k) and paragraph (6) 
     (other than subparagraph (A)(i)) of such section (relating to 
     simplified employee pensions).
       (2) Contribution limits.--
       (A) Sections 401(a)(16), 403(b) (2) and (3), and 415 
     (relating to limitations on benefits and contributions under 
     qualified plans).
       (B) Sections 401(a)(30) and 402(g) (relating to limitation 
     on exclusion for elective deferrals).
       (C) Paragraphs (3) and (7) of section 404(a) (relating to 
     percentage of compensation limits).
       (D) Section 404(l) (relating to limit on includible 
     compensation).
       (3) Restrictions on distributions.--
       (A) Section 72(t) (relating to 10-percent additional tax on 
     early distributions from qualified retirement plans).
       (B) Sections 401(a)(9), 403(b)(10), and 4974 (relating to 
     minimum distribution rules).
       (C) Section 402(e)(4) (relating to net unrealized 
     appreciation).
       (4) Special requirements for plan benefiting self-employed 
     individuals.--Subsections (a)(10)(A) and (d) of section 401.
       (5) Prohibition of tax-exempt organizations and governments 
     from having qualified cash or deferred arrangements.--Section 
     401(k)(4)(B).
       (b) Employer Reversions of Excess Pension Assets Permitted 
     Subject Only to Income Inclusion.--
       (1) Repeal of tax on employer reversions.--Section 4980 of 
     such Code is hereby repealed.
       (2) Employer reversions permitted without plan 
     termination.--Section 420 of such Code is amended to read as 
     follows:

     ``SEC. 420. TRANSFERS OF EXCESS PENSION ASSETS.

       ``(a) In General.--If there is a qualified transfer of any 
     excess pension assets of a defined benefit plan (other than a 
     multiemployer plan) to an employer--
       ``(1) a trust which is part of such plan shall not be 
     treated as failing to meet the requirements of section 401(a) 
     or any other provision of law solely by reason of such 
     transfer (or any other action authorized under this section), 
     and
       ``(2) such transfer shall not be treated as a prohibited 
     transaction for purposes of section 4975.

     The gross income of the employer shall include the amount of 
     any qualified transfer made during the taxable year.
       ``(b) Qualified Transfer.--For purposes of this section--
       ``(1) In general.--The term `qualified transfer' means a 
     transfer--
       ``(A) of excess pension assets of a defined benefit plan to 
     the employer, and
       ``(B) with respect to which the vesting requirements of 
     subsection (c) are met in connection with the plan.
       ``(2) Only 1 transfer per year.--No more than 1 transfer 
     with respect to any plan during a taxable year may be treated 
     as a qualified transfer for purposes of this section.
       ``(c) Vesting Requirements of Plans Transferring Assets.--
     The vesting requirements of this subsection are met if the 
     plan provides that the accrued pension benefits of any 
     participant or beneficiary under the plan become 
     nonforfeitable in the same manner which would be required if 
     the plan had terminated immediately before the qualified 
     transfer (or in the case of a participant who separated 
     during the 1-year period ending on the date of the transfer, 
     immediately before such separation).
       ``(d) Definition and Special Rule.--For purposes of this 
     section--
       ``(1) Excess pension assets.--The term `excess pension 
     assets' means the excess (if any) of--
       ``(A) the amount determined under section 412(c)(7)(A)(ii), 
     over
       ``(B) the greater of--
       ``(i) the amount determined under section 412(c)(7)(A)(i), 
     or
       ``(ii) 125 percent of current liability (as defined in 
     section 412(c)(7)(B)).

     The determination under this paragraph shall be made as of 
     the most recent valuation date of the plan preceding the 
     qualified transfer.
       ``(2) Coordination with section 412.--In the case of a 
     qualified transfer--
       ``(A) any assets transferred in a plan year on or before 
     the valuation date for such year (and any income allocable 
     thereto) shall, for purposes of section 412, be treated as 
     assets in the plan as of the valuation date for such year, 
     and
       ``(B) the plan shall be treated as having a net experience 
     loss under section 412(b)(2)(B)(iv) in an amount equal to the 
     amount of such transfer and for which amortization charges 
     begin for the first plan year after the plan year in which 
     such transfer occurs, except that such section shall be 
     applied to such amount by substituting `10 plan years' for `5 
     plan years'.''.

     SEC. 104. REPEAL OF ALTERNATIVE MINIMUM TAX.

       Part VI of subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 is hereby repealed.

     SEC. 105. REPEAL OF CREDITS.

       Part IV of subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 is hereby repealed.

     SEC. 106. REPEAL OF ESTATE AND GIFT TAXES AND OBSOLETE INCOME 
                   TAX PROVISIONS.

       (a) Repeal of Estate and Gift Taxes.--
       (1) In general.--Subtitle B of the Internal Revenue Code of 
     1986 is hereby repealed.
       (2) Effective date.--The repeal made by paragraph (1) shall 
     apply to the estates of decedents dying, and gifts and 
     generation-skipping transfers made, after December 31, 2005.
       (b) Repeal of Obsolete Income Tax Provisions.--
       (1) In general.--Except as provided in paragraph (2), 
     chapter 1 of the Internal Revenue Code of 1986 is hereby 
     repealed.
       (2) Exceptions.--Paragraph (1) shall not apply to--
       (A) sections 1, 11, and 63 of such Code, as amended by this 
     Act,
       (B) those provisions of chapter 1 of such Code which are 
     necessary for determining whether or not--
       (i) retirement distributions are includible in the gross 
     income of employees, or
       (ii) an organization is exempt from tax under such chapter, 
     and
       (C) subchapter D of such chapter 1 (relating to deferred 
     compensation).

     SEC. 107. EFFECTIVE DATE.

       Except as otherwise provided in this title, the amendments 
     made by this title shall apply to taxable years beginning 
     after December 31, 2005.

            TITLE II--SUPERMAJORITY REQUIRED FOR TAX CHANGES

     SEC. 201. SUPERMAJORITY REQUIRED.

       (a) In General.--It shall not be in order in the House of 
     Representatives or the Senate to consider any bill, joint 
     resolution, amendment thereto, or conference report thereon 
     that includes any provision that--
       (1) increases any Federal income tax rate,
       (2) creates any additional Federal income tax rate,
       (3) reduces the standard deduction, or
       (4) provides any exclusion, deduction, credit, or other 
     benefit which results in a reduction in Federal revenues.
       (b) Waiver or Suspension.--This section may be waived or 
     suspended in the House of Representatives or the Senate only 
     by the affirmative vote of three-fifths of the Members, duly 
     chosen and sworn.
                                 ______