[Congressional Record Volume 151, Number 139 (Thursday, October 27, 2005)]
[Senate]
[Pages S12009-S12013]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WYDEN:
  S. 1927. A bill to amend the Internal Revenue Code of 1986 to make 
the Federal income tax system simpler, fairer, and more fiscally 
responsible, and for other purposes; to the Committee on Finance.
  Mr. WYDEN. Mr. President, today I am proposing a Fair Flat Tax Act 
that will finally provide real tax relief to America's hurting middle 
class. It will do so by making the tax system simpler, flatter and 
fairer. And at the same time, it will begin to reduce the deficit that 
is destabilizing our economy, our security and our future.
  This tax reform proposal is simpler because it's easier to understand 
and use. My legislation will include a new, simplified 1040 form that 
is one page, 30 lines, for every individual taxpayer.
  This plan is flatter because it collapses the current system of six 
individual tax brackets down to three--15, 25 and 35 percent--and 
creates a flat corporate rate of 35 percent.
  Ultimately, this plan is fairer because it changes the laws that 
disproportionately favor the most affluent Americans and corporations 
at the expense of the middle class. Instead, it provides a major 
middle-class tax cut--paid for by the elimination of scores of tax 
breaks in the individual and corporate income tax breaks, and by 
repealing the Bush tax cuts that favored the most fortunate few at the 
expense of the many.
  This plan is fairer for American taxpayers because it treats work and 
wealth equally.
  This is a radical statement about tax law: America can do better than 
a two-tier system which forces a policeman to pay a higher effective 
tax rate than an investor who makes his income on capital gains and 
dividends.
  Under the current Federal Tax Code, all income is not created equal 
in this country. Americans who work for wages, in effect, subsidize the 
tax cuts and credits and deferrals of those who make money through 
unearned income--the dividends from investments. It's time to treat all 
taxpayers the same.
  Let me be clear: I am not interested in soaking investors. I am a 
Democrat who believes in markets, and creating wealth. But what our 
country is all about is equality, and our Tax Code should treat 
everyone's income more equally too.
  My legislation, The Fair Flat Tax Act of 2005, adapts the flat tax 
idea to help reduce the deficit instead, through fewer exclusions, 
exemptions, deductions, deferrals, credits and special rates for 
certain businesses and activities, and through the setting of a single, 
flat corporate rate of 35 percent. On the individual side, it ends 
favoritism for itemizers while improving deductions across the board: 
The standard deduction would be tripled for single filers from $5,000 
to $15,000 and raised from $10,000 to $30,000 for married couples. Six 
individual rates are collapsed into three progressive rates of 15 
percent, 25 percent and 35 percent, and income from all sources is 
taxed the same.
  Several deductions used most frequently by individuals, those for 
home mortgage interest and charitable contributions, and the credits 
for children, education and earned income are retained. No one would 
have to calculate their taxes twice: this proposal eliminates the 
individual Alternative Minimum Tax (AMT), which could snare as many as 
21 million American taxpayers in 2006.
  This proposal would eliminate an estimated $20 billion each year in 
special breaks for corporations, and direct the Treasury Secretary to 
identify and report to Congress an additional $10 billion in savings 
from tax expenditures that subsidize inefficiencies in the health care 
system. Eliminating these breaks would sustain current benefits for our 
men and women in uniform, our veterans and the elderly and disabled--as 
well as breaks that promote savings and help families pay for health 
care and education.
  What makes the Fair Flat Tax Act truly unique is that it corrects one 
of the most glaring inequities in the current tax system: regressive 
State and local taxes. Under current law, low and middle income 
taxpayers get hit with a double whammy: compared to wealthy Americans, 
they pay more of their income in State and local taxes. Poor families 
pay more than 11 percent and middle income families pay about 10 
percent of their income in State and local taxes, while wealthier 
taxpayers only pay five percent. And because many low and middle income 
taxpayers don't itemize, they get no credit on their Federal form for 
paying State and local taxes. In fact, two-thirds of the Federal 
deduction for State and local taxes goes to those with incomes above 
$100,000. Under the Fair Flat Tax Act for the first time the Federal 
code would look at the entire picture, at an individual's combined 
Federal, State and local tax burden, and give credit to low and middle 
income individuals to correct for regressive State and local taxes.

[[Page S12010]]

  Repealing some individual tax credits, deductions and exclusions from 
income--along with some serious changes to the corporate Tax Code--
enables larger standard deductions and broader middle-class tax relief.
  The deductions most important to most Americans remain in place: the 
home mortgage deduction stays, as do child credits and charitable 
contributions, higher education and health savings.
  What all this means for American taxpayers is--the vast majority of 
taxpayers will see a cut, particularly the middle class. Congressional 
Research Service experts tell us that middle class families and 
families with wage and salary incomes up to $150,000 will see tax 
relief.
  On the corporate side--this plan does something that may not be 
popular, but it's right.
  Each of us, including America's corporations, need to pay our fair 
share. Corporations that have used tax loopholes to avoid paying their 
fair share of taxes are going to see those loopholes close and they're 
going to contribute.
  This legislation makes concrete progress toward deficit reduction. 
There's a long way to go to stop the hemorrhaging in the Federal 
budget, but this legislation makes a real start by whittling the 
deficit down approximately $100 billion over five years.
  Some may wonder if what I am proposing today is a response to the 
President's Tax Reform Advisory Panel. To date, the Panel hasn't 
officially released its recommendations. I can't respond to something 
that hasn't been introduced yet. But I am troubled by the fact that the 
recommendations trickling out from the Panel would continue to twist 
the Tax Code away from equal treatment of all income, widening the 
chasm between people who get wages and people who collect dividends.
  I am introducing The Fair Flat Tax Act of 2005 today to provide 
Americans a plan based on common-sense principles that can make the Tax 
Code work better.
  Making the Tax Code simpler and flatter is going to make it fairer. 
My legislation is going to provide real relief to the middle class. It 
will treat work and wealth equally. It will make a start at reducing 
the deficit. I am ready to get to work with my colleagues and move it 
forward.
  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. 1927

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

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Fair Flat 
     Tax Act of 2005''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Purpose.

                 TITLE I--INDIVIDUAL INCOME TAX REFORMS

Sec. 101. 3 progressive individual income tax rates for all forms of 
              income.
Sec. 102. Increase in basic standard deduction.
Sec. 103. Refundable credit for State and local income, sales, and real 
              and personal property taxes.
Sec. 104. Earned income child credit and earned income credit for 
              childless taxpayers.
Sec. 105. Repeal of individual alternative minimum tax.
Sec. 106. Termination of various exclusions, exemptions, deductions, 
              and credits.

          TITLE II--CORPORATE AND BUSINESS INCOME TAX REFORMS

Sec. 201. Corporate flat tax.
Sec. 202. Treatment of travel on corporate aircraft.
Sec. 203. Termination of various preferential treatments.
Sec. 204. Elimination of tax expenditures that subsidize inefficiencies 
              in the health care system.
Sec. 205. Pass-through business entity transparency.

         TITLE III--TECHNICAL AND CONFORMING AMENDMENTS; SUNSET

Sec. 301. Technical and conforming amendments.
Sec. 302. Sunset.

     SEC. 2. PURPOSE.

       The purpose of this Act is to amend the Internal Revenue 
     Code of 1986--
       (1) to make the Federal individual income tax system 
     simpler, fairer, and more transparent by--
       (A) recognizing the overall Federal, State, and local tax 
     burden on individual Americans, especially the regressive 
     nature of State and local taxes, and providing a Federal 
     income tax credit for State and local income, sales, and 
     property taxes,
       (B) providing for an earned income tax credit for childless 
     taxpayers and a new earned income child credit,
       (C) repealing the individual alternative minimum tax,
       (D) increasing the basic standard deduction and maintaining 
     itemized deductions for principal residence mortgage interest 
     and charitable contributions,
       (E) reducing the number of exclusions, exemptions, 
     deductions, and credits, and
       (F) treating all income equally,
       (2) to make the Federal corporate income tax rate a flat 35 
     percent and eliminate special tax preferences that favor 
     particular types of businesses or activities, and
       (3) to partially offset the Federal budget deficit through 
     the increased revenues resulting from these reforms.

                 TITLE I--INDIVIDUAL INCOME TAX REFORMS

     SEC. 101. 3 PROGRESSIVE INDIVIDUAL INCOME TAX RATES FOR ALL 
                   FORMS OF INCOME.

       (a) Married Individuals Filing Joint Returns and Surviving 
     Spouses.--The table contained in section 1(a) is amended to 
     read as follows:
The tax is:e income is:
15% of taxable income. ................................................
$3,750, plus 25% of the excess over $25,000 ...........................
$27,500, plus 35% of the excess over $120,000''........................

       (b) Heads of Households.--The table contained in section 
     1(b) is amended to read as follows:
The tax is:e income is:
15% of taxable income. ................................................
$2,400, plus 25% of the excess over $16,000 ...........................
$24,650, plus 35% of the excess over $105,000''........................

       (c) Unmarried Individuals (Other Than Surviving Spouses and 
     Heads of Households.--The table contained in section 1(c) is 
     amended to read as follows:
The tax is:e income is:
15% of taxable income. ................................................
$2,250, plus 25% of the excess over $15,000 ...........................
$16,000, plus 35% of the excess over $70,000''.........................

       (d) Married Individuals Filing Separate Returns.--The table 
     contained in section 1(d) is amended to read as follows:
The tax is:e income is:
15% of taxable income. ................................................
$1,875, plus 25% of the excess over $12,500 ...........................
$13,750, plus 35% of the excess over $60,000''.........................

       (e) Conforming Amendments to Inflation Adjustment.--Section 
     1(f) is amended--
       (1) by striking ``1993''in paragraph (1) and inserting 
     ``2006'',
       (2) by striking ``except as provided in paragraph (8)'' in 
     paragraph (2)(A),
       (3) by striking ``1992'' in paragraph (3)(B) and inserting 
     ``2005'',
       (4) by striking paragraphs (7) and (8), and
       (5) by striking ``Phaseout of Marriage Penalty in 15-
     Percent Bracket;'' in the heading thereof.
       (f) Repeal of Rate Differential for Capital Gains and 
     Dividends.--
       (1) Repeal of 2003 rate reduction.--Section 303 of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003 is amended 
     by striking ``December 3, 2008'' and inserting ``December 31, 
     2005''.
       (2) Termination of pre-2003 capital gain rate differential 
     .--Section 1(h) is amended (after the application of 
     paragraph (1)) by adding at the end the following new 
     paragraph:
       ``(13) Termination.--This section shall not apply to 
     taxable years beginning after December 31, 2005.''.
       (g) Additional Conforming Amendments.--
       (1) Section 1 is amended by striking subsection (i).
       (2) The Internal Revenue Code of 1986 is amended by 
     striking ``calendar year 1992'' each place it appears and 
     inserting ``calendar year 2005''.
       (3) Section 1445(e)(1) (after the application of subsection 
     (g)(1)) is amended by striking ``(or, to the extent provided 
     in regulations, 20 percent)''.
       (h) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION.

       (a) In General.--Paragraph (2) of section 63(c) (defining 
     standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),

[[Page S12011]]

       ``(B) $26,250 in the case of a head of household (as 
     defined in section 2(b)), or
       ``(C) $15,000 in any other case.''.
       (b) Conforming Amendment to Inflation Adjustment.--Section 
     63(c)(4)(B)(i) is amended by striking ``(2)(B), (2)(C), or''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 103. REFUNDABLE CREDIT FOR STATE AND LOCAL INCOME, 
                   SALES, AND REAL AND PERSONAL PROPERTY TAXES.

       (a) General Rule.--Subpart C of part IV of subchapter A of 
     chapter 1 (relating to refundable credits) is amended by 
     redesignating section 36 as section 37 and by inserting after 
     section 35 the following new section:

     ``SEC. 36. CREDIT FOR STATE AND LOCAL INCOME, SALES, AND REAL 
                   AND PERSONAL PROPERTY TAXES.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed as a credit against the tax imposed by 
     this subtitle for the taxable year an amount equal to 10 
     percent of the qualified State and local taxes paid by the 
     taxpayer for such year.
       ``(b) Qualified State and Local Taxes.--For purposes of 
     this section, the term `qualified State and local taxes' 
     means--
       ``(1) State and local income taxes,
       ``(2) State and local general sales taxes,
       ``(3) State and local real property taxes, and
       ``(4) State and local personal property taxes.
       ``(c) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) State or local taxes.--A State or local tax includes 
     only a tax imposed by a State, a possession of the United 
     States, or a political subdivision of any of the foregoing, 
     or by the District of Columbia.
       ``(2) General sales taxes.--
       ``(A) In general.--The term `general sales tax' means a tax 
     imposed at one rate with respect to the sale at retail of a 
     broad range of classes of items.
       ``(B) Application of rules.--Rules similar to the rules 
     under subparagraphs (C), (D), (E), (F), (G), and (H) of 
     section 164(b)(5) shall apply.
       ``(3) Personal property taxes.--The term `personal property 
     tax' means an ad valorem tax which is imposed on an annual 
     basis in respect of personal property.
       ``(4) Application of rules to property taxes.--Rules 
     similar to the rules of subsections (c) and (d) of section 
     164 shall apply.
       ``(5) No credit for married individuals filing separate 
     returns.--If the taxpayer is a married individual (within the 
     meaning of section 7703), this section shall apply only if 
     the taxpayer and the taxpayer's spouse file a joint return 
     for the taxable year.
       ``(6) Denial of credit to dependents.--No credit shall be 
     allowed under this section to any individual with respect to 
     whom a deduction under section 151 is allowable to another 
     taxpayer for a taxable year beginning in the calendar year in 
     which such individual's taxable year begins.
       ``(7) Denial of double benefit.--Any amount taken into 
     account in determining the credit allowable under this 
     section may not be taken into account in determining any 
     credit or deduction under any other provision of this 
     chapter.''.
       (b) Technical Amendments.--
       (1) Paragraph (2) of section 1324(b) of title 31, United 
     States Code, is amended by inserting ``or from section 36 of 
     such Code'' before the period at the end.
       (2) The table of sections for subpart C of part IV of 
     subchapter A of chapter 1 is amended by striking the item 
     relating to section 36 and inserting the following:

``Sec. 36. Credit for state and local income, sales, and real and 
              personal property taxes.
``Sec. 37. Overpayments of tax.''.

       (c) Report Regarding Use of Credit by Renters.--Not later 
     than 180 days after the date of the enactment of this Act, 
     the Secretary of the Treasury shall report to the Committee 
     on Finance of the Senate and the Committee on Ways and Means 
     of the House of Representatives recommendations regarding the 
     treatment of a portion of rental payments in a manner similar 
     to real property taxes under section 36 of the Internal 
     Revenue Code of 1986 (as added by this section).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 104. EARNED INCOME CHILD CREDIT AND EARNED INCOME CREDIT 
                   FOR CHILDLESS TAXPAYERS.

       (a) In General.--Subsection (a) of section 32 (relating to 
     earned income) is amended to read as follows:
       ``(a) Allowance of Earned Income Child Credit and Earned 
     Income Credit.--
       ``(1) In general.--There shall be allowed as a credit 
     against the tax imposed by this subtitle for the taxable 
     year--
       ``(A) in the case of any eligible individual with 1 or more 
     qualifying children, an amount equal to the earned income 
     child credit amount, and
       ``(B) in the case of any eligible individual with no 
     qualifying children, an amount equal to the earned income 
     credit amount.
       ``(2) Earned income child credit amount.--For purposes of 
     this section, the earned income child credit amount is equal 
     to the sum of--
       ``(A) the credit percentage of so much of the taxpayer's 
     earned income for the taxable year as does not exceed the 
     earned income limit amount, plus
       ``(B) the supplemental child credit amount determined under 
     subsection (n) for such taxable year.
       ``(3) Earned income credit amount.--For purposes of this 
     section, the earned income credit amount is equal to the 
     credit percentage of so much of the taxpayer's earned income 
     for the taxable year as does not exceed the earned income 
     limit amount.
       ``(4) Limitation.--The amount of the credit allowable to a 
     taxpayer under paragraph (2)(A) or (3) for any taxable year 
     shall not exceed the excess (if any) of--
       ``(A) the credit percentage of the earned income amount, 
     over
       ``(B) the phaseout percentage of so much of the adjusted 
     gross income (or, if greater, the earned income) of the 
     taxpayer for the taxable year as exceeds the phaseout 
     amount.''.
       (b) Supplemental Child Credit Amount.--Section 32 is 
     amended by adding at the end the following new subsection:
       ``(n) Supplemental Child Credit Amount.--
       ``(1) In general.--For purposes of subsection (a)(2)(B), 
     the supplemental child credit amount for any taxable year is 
     equal to the lesser of--
       ``(A) the credit which would be allowed under section 24 
     for such taxable year without regard to the limitation under 
     section 24(b)(3) with respect to any qualifying child as 
     defined under subsection (c)(3), or
       ``(B) the amount by which the aggregate amount of credits 
     allowed by subpart A for such taxable year would increase if 
     the limitation imposed by section 24(b)(3) were increased by 
     the excess (if any) of--
       ``(i) 15 percent of so much of the taxpayer's earned income 
     which is taken into account in computing taxable income for 
     the taxable year as exceeds $10,000, or
       ``(ii) in the case of a taxpayer with 3 or more qualifying 
     children (as so defined), the excess (if any) of--

       ``(I) the taxpayer's social security taxes for the taxable 
     year, over
       ``(II) the credit allowed under this section for the 
     taxable year.

     The amount of the credit allowed under this subsection shall 
     not be treated as a credit allowed under subpart A and shall 
     reduce the amount of credit otherwise allowable under section 
     24(a) without regard to section 24(b)(3).
       ``(2) Social security taxes.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `social security taxes' means, 
     with respect to any taxpayer for any taxable year--
       ``(i) the amount of the taxes imposed by section 3101 and 
     3201(a) on amounts received by the taxpayer during the 
     calendar year in which the taxable year begins,
       ``(ii) 50 percent of the taxes imposed by section 1401 on 
     the self-employment income of the taxpayer for the taxable 
     year, and
       ``(iii) 50 percent of the taxes imposed by section 
     3211(a)(1) on amounts received by the taxpayer during the 
     calendar year in which the taxable year begins.
       ``(B) Coordination with special refund of social security 
     taxes.--The term `social security taxes' shall not include 
     any taxes to the extent the taxpayer is entitled to a special 
     refund of such taxes under section 6413(c).
       ``(C) Special rule.--Any amounts paid pursuant to an 
     agreement under section 3121(l) (relating to agreements 
     entered into by American employers with respect to foreign 
     affiliates) which are equivalent to the taxes referred to in 
     subparagraph (A)(i) shall be treated as taxes referred to in 
     such paragraph.
       ``(3) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2005, the $10,000 
     amount contained in paragraph (1)(B) shall be increased by an 
     amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2000' 
     for `calendar year 1992' in subparagraph (B) thereof.

     Any increase determined under the preceding sentence shall be 
     rounded to the nearest multiple of $50.''.
       (c) Conforming Amendment.--Section 24(d) is amended by 
     adding at the end the following new paragraph:
       ``(4) Termination.--This subsection shall not apply with 
     respect to any taxable year beginning after December 31, 
     2005.''.
       (d) Certain Treatment of Earned Income Made Permanent.--
     Clause (vi) of section 32(c)(2)(B) is amended to read as 
     follows:
       ``(vi) a taxpayer may elect to treat amounts excluded from 
     gross income by reason of section 112 as earned income.''.
       (e) Repeal of Disqualified Investment Income Test.--
     Subsection (i) of section 32 is repealed.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 105. REPEAL OF INDIVIDUAL ALTERNATIVE MINIMUM TAX.

       (a) In General.--Section 55(a) (relating to alternative 
     minimum tax imposed) is amended by adding at the end the 
     following new flush sentence:
     ``For purposes of this title, the tentative minimum tax on 
     any taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2005, shall be zero.''.
       (b) Modification of Limitation on Use of Credit for Prior 
     Year Minimum Tax Liability.--Subsection (c) of section 53 
     (relating to credit for prior year minimum tax liability) is 
     amended to read as follows:

[[Page S12012]]

       ``(c) Limitation.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     credit allowable under subsection (a) for any taxable year 
     shall not exceed the excess (if any) of --
       ``(A) the regular tax liability of the taxpayer for such 
     taxable year reduced by the sum of the credits allowable 
     under subparts A, B, D, E, and F of this part, over
       ``(B) the tentative minimum tax for the taxable year.
       ``(2) Taxable years beginning after 2005.--In the case of 
     any taxable year beginning after 2005, the credit allowable 
     under subsection (a) to a taxpayer other than a corporation 
     for any taxable year shall not exceed 90 percent of the 
     regular tax liability of the taxpayer for such taxable year 
     reduced by the sum of the credits allowable under subparts A, 
     B, D, E, and F of this part.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 106. TERMINATION OF VARIOUS EXCLUSIONS, EXEMPTIONS, 
                   DEDUCTIONS, AND CREDITS.

       (a) In General.--Subchapter C of chapter 90 (relating to 
     provisions affecting more than one subtitle) is amended by 
     adding at the end the following new section:

     ``SEC. 7875. TERMINATION OF CERTAIN PROVISIONS.

       ``The following provisions shall not apply to taxable years 
     beginning after December 31, 2005:
       ``(1) Section 44 (relating to credit for expenditures to 
     provide access to disabled individuals).
       ``(2) Section 62(a)(2)(D) (relating to deduction for 
     certain expenses of elementary and secondary school 
     teachers).
       ``(3) Section 67 (relating to 2-percent floor on 
     miscellaneous itemized deductions).
       ``(4) Section 74(c) (relating to exclusion of certain 
     employee achievement awards).
       ``(5) Section 79 (relating to exclusion of group-term life 
     insurance purchased for employees).
       ``(6) Section 104(a)(1) (relating to exclusion of workmen's 
     compensation).
       ``(7) Section 104(a)(2) (relating to exclusion of damages 
     for physical injuries and sickness).
       ``(8) Section 107 (relating to exclusion of rental value of 
     parsonages).
       ``(9) Section 119 (relating to exclusion of meals or 
     lodging furnished for the convenience of the employer).
       ``(10) Section 125 (relating to exclusion of cafeteria plan 
     benefits).
       ``(11) Section 132 (relating to certain fringe benefits), 
     except with respect to subsection (a)(5) thereof (relating to 
     exclusion of qualified transportation fringe).
       ``(12) Section 163(h)(4)(A)(i)(II) (relating to definition 
     of qualified residence).
       ``(13) Section 165(d) (relating to deduction for wagering 
     losses).
       ``(14) Section 217 (relating to deduction for moving 
     expenses).
       ``(15) Section 454 (relating to deferral of tax on 
     obligations issued at discount).
       ``(16) Section 501(c)(9) (relating to tax-exempt status of 
     voluntary employees' beneficiary associations).
       ``(17) Section 911 (relating to exclusion of earned income 
     of citizens or residents of the United States living abroad).
       ``(18) Section 912 (relating to exemption for certain 
     allowances).''.
       (b) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 90 is amended by adding at the end 
     the following new item:

``Sec. 7875. Termination of certain provisions.''.

          TITLE II--CORPORATE AND BUSINESS INCOME TAX REFORMS

     SEC. 201. CORPORATE FLAT TAX.

       (a) In General.--Subsection (b) of section 11 (relating to 
     tax imposed) is amended to read as follows:
       ``(b) Amount of Tax.--The amount of tax imposed by 
     subsection (a) shall be equal to 35 percent of the taxable 
     income.''.
       (b) Conforming Amendments.--
       (1) Section 280C(c)(3)(B)(ii)(II) is amended by striking 
     ``maximum rate of tax under section 11(b)(1)'' and inserting 
     ``rate of tax under section 11(b)''.
       (2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 
     860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 1446(b)(2)(B), and 
     7874(e)(1)(B) are each amended by striking ``highest rate of 
     tax specified in section 11(b)(1)'' and inserting ``rate of 
     tax specified in section 11(b)''.
       (3) Section 904(b)(3)(D)(ii) is amended by striking 
     ``(determined without regard to the last sentence of section 
     11(b)(1))''.
       (4) Section 962 is amended by striking subsection (c) and 
     by redesignating subsection (d) as subsection (c).
       (5) Section 1201(a) is amended by striking ``(determined 
     without regard to the last 2 sentences of section 
     11(b)(1))''.
       (6) Section 1561(a) is amended--
       (A) by striking paragraph (1) and by redesignating 
     paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), 
     respectively,
       (B) by striking ``The amounts specified in paragraph (1), 
     the'' and inserting ``The'',
       (C) by striking ``paragraph (2)'' and inserting ``paragraph 
     (1)'',
       (D) by striking ``paragraph (3)'' both places it appears 
     and inserting ``paragraph (2)'',
       (E) by striking ``paragraph (4)'' and inserting ``paragraph 
     (3)'', and
       (F) by striking the fourth sentence.
       (7) Subsection (b) of section 1561 is amended to read as 
     follows:
       ``(b) Certain Short Taxable Years.--If a corporation has a 
     short taxable year which does not include a December 31 and 
     is a component member of a controlled group of corporations 
     with respect to such taxable year, then for purposes of this 
     subtitle, the amount to be used in computing the accumulated 
     earnings credit under section 535(c)(2) and (3) of such 
     corporation for such taxable year shall be the amount 
     specified in subsection (a)(1) divided by the number of 
     corporations which are component members of such group on the 
     last day of such taxable year. For purposes of the preceding 
     sentence, section 1563(b) shall be applied as if such last 
     day were substituted for December 31.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIRCRAFT.

       (a) In General.--Section 162 (relating to trade or business 
     expenses) is amended by redesignating subsection (q) as 
     subsection (r) and b inserting after subsection (p) the 
     following new subsection:
       ``(q) Treatment of Travel on Corporate Aircraft.--The rate 
     at which an amount allowable as a deduction under this 
     chapter for the use of an aircraft owned by the taxpayer is 
     determined shall not exceed the rate at which an amount paid 
     or included in income by an employee of such taxpayer for the 
     personal use of such aircraft is determined.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 203. TERMINATION OF VARIOUS PREFERENTIAL TREATMENTS.

       (a) In General.--Section 7875, as added by section 106, is 
     amended--
       (1) by inserting ``(or transactions in the case of sections 
     referred to in paragraphs (21), (22), (23), (24), and (27))'' 
     after ``taxable years beginning'', and
       (2) by adding at the end the following new paragraphs:
       ``(19) Section 43 (relating to enhanced oil recovery 
     credit).
       ``(20) Section 263(c) (relating to intangible drilling and 
     development costs in the case of oil and gas wells and 
     geothermal wells).
       ``(21) Section 382(l)(5) (relating to exception from net 
     operating loss limitations for corporations in bankruptcy 
     proceeding).
       ``(22) Section 451(i) (relating to special rules for sales 
     or dispositions to implement Federal Energy Regulatory 
     Commission or State electric restructuring policy).
       ``(23) Section 453A (relating to special rules for 
     nondealers), but only with respect to the dollar limitation 
     under subsection (b)(1) thereof and subsection (b)(3) thereof 
     (relating to exception for personal use and farm property).
       ``(24) Section 460(e)(1) (relating to special rules for 
     long-term home construction contracts or other short-term 
     construction contracts).
       ``(25) Section 613A (relating to percentage depletion in 
     case of oil and gas wells).
       ``(26) Section 616 (relating to development costs).
       ``(27) Sections 861(a)(6), 862(a)(6), 863(b)(2), 863(b)(3), 
     and 865(b) (relating to inventory property sales source rule 
     exception).''.
       (b) Full Tax Rate on Nuclear Decommissioning Reserve 
     Fund.--Subparagraph (B) of section 468A(e)(2) is amended to 
     read as follows:
       ``(B) Rate of tax.--For purposes of subparagraph (A), the 
     rate set forth in this subparagraph is 35 percent.''.
       (c) Deferral of Active Income of Controlled Foreign 
     Corporations.--Section 952 (relating to subpart F income 
     defined) is amended by adding at the end the following new 
     subsection:
       ``(e) Special Application of Subpart.--
       ``(1) In general.--For taxable years beginning after 
     December 31, 2005, notwithstanding any other provision of 
     this subpart, the term `subpart F income' means, in the case 
     of any controlled foreign corporation, the income of such 
     corporation derived from any foreign country.
       ``(2) Applicable rules.--Rules similar to the rules under 
     the last sentence of subsection (a) and subsection (d) shall 
     apply to this subsection.''.
       (d) Deferral of Active Financing Income.--Section 
     953(e)(10) is amended--
       (1) by striking ``2006'' and inserting ``2005'', and
       (2) by striking ``2007'' and inserting ``2006''.
       (e) Depreciation on Equipment in Excess of Alternative 
     Depreciation System.--Section 168(g)(1) (relating to 
     alternative depreciation system) is amended by striking 
     ``and'' at the end of subparagraph (D), by adding ``and'' at 
     the end of subparagraph (E), and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) notwithstanding subsection (a), any tangible property 
     placed in service after December 31, 2005,''.
       (f) Effective Date.--The amendments made by subsections 
     (b), (c), and (d) shall apply to taxable years beginning 
     after December 31, 2005.

     SEC. 204. ELIMINATION OF TAX EXPENDITURES THAT SUBSIDIZE 
                   INEFFICIENCIES IN THE HEALTH CARE SYSTEM.

       Not later than 180 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives recommendations 
     regarding the elimination of Federal tax incentives which 
     subsidize inefficiencies in the health care

[[Page S12013]]

     system and if eliminated would result in Federal budget 
     savings of not less than $10,000,000,000 annually.

     SEC. 205. PASS-THROUGH BUSINESS ENTITY TRANSPARENCY.

       Not later than 90 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives regarding the 
     implementation of additional reporting requirements with 
     respect to any pass-through entity with the goal of the 
     reduction of tax avoidance through the use of such entities, 
     In addition, the Secretary shall develop procedures to share 
     such report data with State revenue agencies under the 
     disclosure requirements of section 6103(d) of the Internal 
     Revenue Code of 1986.

         TITLE III--TECHNICAL AND CONFORMING AMENDMENTS; SUNSET

     SEC. 301. TECHNICAL AND CONFORMING AMENDMENTS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall not later than 90 days after the date of the enactment 
     of this Act, submit to the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate a draft of any technical and conforming changes in the 
     Internal Revenue Code of 1986 which are necessary to reflect 
     throughout such Code the purposes of the provisions of, and 
     amendments made by, this Act.

     SEC. 302. SUNSET.

       (a) In General.--All provisions of, and amendments made by, 
     this Act shall not apply to taxable years beginning after 
     December 31, 2010.
       (b) Application of Code.--The Internal Revenue Code of 1986 
     shall be applied and administered to taxable years described 
     in subsection (a) as if the provisions of, and amendments 
     made by, this Act had never been enacted.
                                 ______