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house Bill H.R. 1040

Should Individuals and Businesses Have the Choice of a Flat Tax Instead of the Current Tax System?

Argument in favor

An optional flat tax would dramatically simplify the tax code for Americans who choose to take advantage of it, saving them both time and money.

Argument opposed

Creating an optional flat tax alongside the existing tax code would let the wealthiest Americans pay less in taxes than they currently do, it’s unfair.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house has not voted
      house Committees
      Committee on Ways and Means
    IntroducedFebruary 7th, 2019

What is House Bill H.R. 1040?

This bill would give individuals and businesses the choice to irrevocably opt out of the current income tax structure and instead pay a flat tax of 19 percent for the first two years, and 17 percent annually thereafter. To increase the rate of the flat tax or reduce the value of deductions, a two-thirds vote by both chambers of Congress would be required. Additionally, this bill would repeal the estate, gift, and generation-skipping transfer taxes.

The tax would be calculated by subtracting from gross income a basic standard deduction for the filing individual and additional standard deduction(s) for their dependants. For businesses it would be a similar process, with deductions for business inputs, wages, and retirement contributions taken into account.

Impact

Individuals and businesses that would prefer a flat tax; tax system; Congress; and the federal government.

Cost of House Bill H.R. 1040

A CBO cost estimate is unavailable.

More Information

In-Depth: Sponsoring Rep. Michael Burgess (R-TX) reintroduced this bill from the 115th Congress. Rep. Burgess is a longtime advocate for a flat tax, and has introduced this legislation during previous sessions of Congress. Upon introducing one of this bill’s predecessors in 2011, Burgess said:

“The goal of the Freedom Flat Tax is to create a tax system that minimizes the number of market-distorting investment decisions that are made as a result of the current tax system. People should base their financial systems on common-sense economics, not the tax code. HR 1040 is simple, fair and pro-growth.”

Americans for Tax Reform (ATR) supports this bill. In 2013, it wrote a letter to Rep. Burgess:

“The Flat Tax Act puts into law the original one-rate income tax concept advanced by Stanford economists Robert Hall and Alvin Rabushka.  It would completely replace the current personal and corporate income tax structures (as well as the death tax) with a new, voluntary system featuring a flat rate of 17 percent.  The tax base in the Flat Tax Act would be restricted entirely to business profits, wages, retirement plan distributions, and unemployment compensation.  This is a rough proxy for a consumed income base, which excludes the return on savings from income taxation and allows for a full deduction for all business inputs.  Only in this way can a key tax reform principle be achieved: taxing all income once and only once. A key advantage of your version of the flat tax idea is that each taxpayer gets to choose for himself whether to stay in the current system or move over to the flat tax system.  Families and business owners who have built their lives around the current system’s maze of exclusions, adjustments, deductions, and credits can stay in the current system if they want to.  Most Americans will gladly migrate over to the far easier flat tax system. The Flat Tax Act provides for a generous family deduction to ensure that the new system is steeply progressive and exempts families at or near poverty from income taxation.  Under the bill, a family of four would face no income taxation on its first $46,100 (plus inflation) of taxable earnings.  This is nearly twice the federal poverty level for a family this size.  No American family is taxed below about 150% of the federal poverty level. Finally, the Flat Tax Act creates a two-thirds Congressional supermajority requirement to raise the tax rate or limit the standard deduction.  This is a wise and necessary protection for taxpayers.”

The Cato Institute's Xia Yeliang expressed his support for flat taxes

"[A] flat-tax proposal — or any other efforts to move toward flat tax reform — would mean an end to everything that most Americans hate about tax season. All Americans — rich, middle-class, or poor — would benefit from lower, simpler tax filings. And that’s nothing short of a revolution."

Forbes notes that flat tax critics say it unfairly overtaxes wealthier taxpayers and those with special circumstances:

”[A] true flat tax impacts taxpayers disproportionately even though the tax is proportionate. For example, let’s assume a tax rate of 10%. For a household making $1,000,000, that 10% would represent $100,000 in tax. For a household making $10,000, that 10% would represent $1,000 in tax. The baseline cost of living does not change as income changes: with respect to a gallon of milk or gas, for example, the cost of that milk or gas doesn’t cost less for the poor than for the wealthy. If basic expenses like food and fuel are relatively inelastic, while a flat tax may be proportionate, the effect of the tax may be disproportionate. If you mix in other circumstances (caring for a disabled child or several minor children), the effect is even more dramatic.”

There are no cosponsors of this bill in the 116th Congress. Last Congress, it had the support of three Republican cosponsors in the House and didn't receive a committee vote.


Media:

Summary by Eric Revell

(Photo Credit: kenteegardin via Flickr / Creative Commons)

AKA

Flat Tax Act

Official Title

To amend the Internal Revenue Code of 1986 to provide taxpayers a flat tax alternative to the current income tax system.