I 118TH CONGRESS 1ST SESSION H. R. 1040 To amend the Internal Revenue Code of 1986 to provide taxpayers a flat tax alternative to the current income tax system. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 14, 2023 Mr. BURGESS introduced the following bill; which was referred to the Com- mittee on Ways and Means, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To amend the Internal Revenue Code of 1986 to provide taxpayers a flat tax alternative to the current income tax system. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Flat Tax Act’’. 4 SEC. 2. THE FLAT TAX. 5 (a) IN GENERAL.—Subchapter A of chapter 1 of the 6 Internal Revenue Code of 1986 is amended by inserting 7 after part VII the following new part: 8 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 1040 IH ‘‘PART VIII—THE FLAT TAX 1 ‘‘Sec. 60. Irrevocable election to be subject to flat tax. ‘‘Sec. 60A. Tax imposed on individuals. ‘‘Sec. 60B. Tax imposed on business activities. ‘‘Sec. 60C. Tax on noncash compensation provided to employees not engaged in business activity. ‘‘SEC. 60. IRREVOCABLE ELECTION TO BE SUBJECT TO 2 FLAT TAX. 3 ‘‘(a) INDIVIDUAL.— 4 ‘‘(1) IN GENERAL.—Except as provided in para- 5 graph (2), in lieu of the tax imposed by sections 1 6 (relating to tax imposed) and 55 (relating to alter- 7 native minimum tax imposed), under regulations 8 prescribed by the Secretary, an individual may make 9 an irrevocable election to be subject to the tax im- 10 posed by this part. 11 ‘‘(2) INNOCENT SPOUSE EXCEPTION.—An indi- 12 vidual who has made an election under paragraph 13 (1) and who subsequently obtains relief of liability 14 for tax under section 6015(b) may, not later than 1 15 year after the date such relief is granted, revoke the 16 election made under paragraph (1). 17 ‘‘(b) PERSON ENGAGED IN BUSINESS ACTIVITY.—In 18 lieu of the tax imposed by sections 11 (relating to tax im- 19 posed) and 55 (relating to alternative minimum tax im- 20 posed), under regulations prescribed by the Secretary, a 21 person engaged in business activity may make an irrev- 22 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 1040 IH ocable election to be subject to the tax imposed by this 1 part. 2 ‘‘(c) DISALLOWANCE OF CREDITS.—No credit shall 3 be allowed under this chapter for any taxable year to any 4 person with respect to whom an election under subsection 5 (a) or (b) is in effect. 6 ‘‘SEC. 60A. TAX IMPOSED ON INDIVIDUALS. 7 ‘‘(a) IN GENERAL.—There is hereby imposed on the 8 taxable income of every individual who makes an election 9 to be subject to this part a tax equal to— 10 ‘‘(1) 19 percent of the taxable income of such 11 individual for such taxable year in the case of the 12 first 2 taxable years of the individual beginning with 13 the taxable year for which the election is made, and 14 ‘‘(2) 17 percent of the taxable income of such 15 individual for such taxable year in the case of all 16 taxable years subsequent to the taxable years de- 17 scribed in paragraph (1). 18 ‘‘(b) TAXABLE INCOME.—For purposes of this part, 19 the term ‘taxable income’ means the excess of— 20 ‘‘(1) the sum of— 21 ‘‘(A) wages (as defined in section 3121(a) 22 without regard to paragraph (1) thereof) which 23 are paid in cash and which are received during 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 1040 IH the taxable year for services performed in the 1 United States, 2 ‘‘(B) retirement distributions which are in- 3 cludible in gross income for such taxable year, 4 plus 5 ‘‘(C) amounts received under any law of 6 the United States or of any State which is in 7 the nature of unemployment compensation, over 8 ‘‘(2) the standard deduction. 9 ‘‘(c) STANDARD DEDUCTION.—For purposes of this 10 part— 11 ‘‘(1) IN GENERAL.—The term ‘standard deduc- 12 tion’ means the sum of— 13 ‘‘(A) the basic standard deduction, plus 14 ‘‘(B) the additional standard deduction. 15 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur- 16 poses of paragraph (1), the basic standard deduction 17 is— 18 ‘‘(A) $32,496 in the case of— 19 ‘‘(i) a joint return, or 20 ‘‘(ii) a surviving spouse (as defined in 21 section 2(a)), 22 ‘‘(B) $20,739 in the case of a head of 23 household (as defined in section 2(b)), and 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 1040 IH ‘‘(C) $16,248 in the case of an indi- 1 vidual— 2 ‘‘(i) who is not married and who is 3 not a surviving spouse or head of house- 4 hold, or 5 ‘‘(ii) who is a married individual filing 6 a separate return. 7 ‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For 8 purposes of paragraph (1), the additional standard 9 deduction is $6,998 for each dependent (as defined 10 in section 152) who is a qualifying child (as defined 11 in section 152(c)(1)) for the taxable year and who 12 is not required to file a return for such taxable year. 13 ‘‘(d) RETIREMENT DISTRIBUTIONS.—For purposes 14 of this section, the term ‘retirement distribution’ means 15 any distribution from— 16 ‘‘(1) a plan described in section 401(a) which 17 includes a trust exempt from tax under section 18 501(a), 19 ‘‘(2) an annuity plan described in section 20 403(a), 21 ‘‘(3) an annuity contract described in section 22 403(b), 23 ‘‘(4) an individual retirement account described 24 in section 408(a), 25 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 1040 IH ‘‘(5) an individual retirement annuity described 1 in section 408(b), 2 ‘‘(6) an eligible deferred compensation plan (as 3 defined in section 457), 4 ‘‘(7) a governmental plan (as defined in section 5 414(d)), or 6 ‘‘(8) a trust described in section 501(c)(18). 7 Such term includes any plan, contract, account, annuity, 8 or trust which, at any time, has been determined by the 9 Secretary to be such a plan, contract, account, annuity, 10 or trust. 11 ‘‘(e) INCOME OF CERTAIN CHILDREN.—For purposes 12 of this part— 13 ‘‘(1) an individual’s taxable income shall include 14 the taxable income of each dependent child of such 15 individual who has not attained age 14 as of the 16 close of such taxable year, and 17 ‘‘(2) such dependent child shall have no liability 18 for tax imposed by this section with respect to such 19 income and shall not be required to file a return for 20 such taxable year. 21 ‘‘(f) INFLATION ADJUSTMENT.— 22 ‘‘(1) IN GENERAL.—In the case of any taxable 23 year beginning in a calendar year after 2023, each 24 dollar amount contained in subsection (c) shall be 25 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 1040 IH increased by an amount determined by the Secretary 1 to be equal to— 2 ‘‘(A) such dollar amount, multiplied by 3 ‘‘(B) the cost-of-living adjustment for such 4 calendar year. 5 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur- 6 poses of paragraph (1), the cost-of-living adjustment 7 for any calendar year is the percentage (if any) by 8 which— 9 ‘‘(A) the CPI for the preceding calendar 10 year, exceeds 11 ‘‘(B) the CPI for the calendar year 2022. 12 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur- 13 poses of paragraph (2), the CPI for any calendar 14 year is the average of the Consumer Price Index as 15 of the close of the 12-month period ending on Au- 16 gust 31 of such calendar year. 17 ‘‘(4) CONSUMER PRICE INDEX.—For purposes 18 of paragraph (3), the term ‘Consumer Price Index’ 19 means the last Consumer Price Index for all urban 20 consumers published by the Department of Labor. 21 For purposes of the preceding sentence, the revision 22 of the Consumer Price Index which is most con- 23 sistent with the Consumer Price Index for calendar 24 year 1986 shall be used. 25 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 1040 IH ‘‘(5) ROUNDING.—If any increase determined 1 under paragraph (1) is not a multiple of $10, such 2 increase shall be rounded to the next highest mul- 3 tiple of $10. 4 ‘‘(g) MARITAL STATUS.—For purposes of this sec- 5 tion, marital status shall be determined under section 6 7703. 7 ‘‘SEC. 60B. TAX IMPOSED ON BUSINESS ACTIVITIES. 8 ‘‘(a) TAX IMPOSED.—There is hereby imposed on 9 every person engaged in a business activity who makes an 10 election to be taxed under this part a tax equal to— 11 ‘‘(1) 19 percent of the business taxable income 12 of such person for such taxable year in the case of 13 the first 2 taxable years of the person beginning 14 with the taxable year for which the election is made, 15 and 16 ‘‘(2) 17 percent of the business taxable income 17 of such person for such taxable year in the case of 18 all taxable years subsequent to the taxable years de- 19 scribed in paragraph (1). 20 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 21 section shall be paid by the person engaged in the business 22 activity, whether such person is an individual, partnership, 23 corporation, or otherwise. 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 1040 IH ‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of 1 this section— 2 ‘‘(1) IN GENERAL.—The term ‘business taxable 3 income’ means gross active income reduced by the 4 deductions specified in subsection (d). 5 ‘‘(2) GROSS ACTIVE INCOME.— 6 ‘‘(A) IN GENERAL.—For purposes of para- 7 graph (1), the term ‘gross active income’ means 8 gross receipts from— 9 ‘‘(i) the sale or exchange of property 10 or services in the United States by any 11 person in connection with a business activ- 12 ity, and 13 ‘‘(ii) the export of property or services 14 from the United States in connection with 15 a business activity. 16 ‘‘(B) EXCHANGES.—For purposes of this 17 section, the amount treated as gross receipts 18 from the exchange of property or services is the 19 fair market value of the property or services re- 20 ceived, plus any money received. 21 ‘‘(C) COORDINATION WITH SPECIAL RULES 22 FOR FINANCIAL SERVICES, ETC.—Except as 23 provided in subsection (e)— 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 1040 IH ‘‘(i) the term ‘property’ does not in- 1 clude money or any financial instrument, 2 and 3 ‘‘(ii) the term ‘services’ does not in- 4 clude financial services. 5 ‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF 6 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA- 7 NIZATIONS.—For purposes of this section, the term 8 ‘business activity’ does not include any activity of a 9 governmental entity or of any other organization 10 which is exempt from tax under this chapter. 11 ‘‘(d) DEDUCTIONS.— 12 ‘‘(1) IN GENERAL.—The deductions specified in 13 this subsection are— 14 ‘‘(A) the cost of business inputs for the 15 business activity, 16 ‘‘(B) wages (as defined in section 3121(a) 17 without regard to paragraph (1) thereof) which 18 are paid in cash for services performed in the 19 United States as an employee, and 20 ‘‘(C) retirement contributions to or under 21 any plan or arrangement which makes retire- 22 ment distributions (as defined in section 23 60A(d)) for the benefit of such employees to the 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 1040 IH extent such contributions are allowed as a de- 1 duction under section 404. 2 ‘‘(2) BUSINESS INPUTS.— 3 ‘‘(A) IN GENERAL.—For purposes of para- 4 graph (1), the term ‘cost of business inputs’ 5 means— 6 ‘‘(i) the amount paid for property sold 7 or used in connection with a business ac- 8 tivity, 9 ‘‘(ii) the amount paid for services 10 (other than for the services of employees, 11 including fringe benefits paid by reason of 12 such services) in connection with a busi- 13 ness activity, and 14 ‘‘(iii) any excise tax, sales tax, cus- 15 toms duty, or other separately stated levy 16 imposed by a Federal, State, or local gov- 17 ernment on the purchase of property or 18 services which are for use in connection 19 with a business activity. 20 Such term shall not include any tax imposed by 21 chapter 2 or 21. 22 ‘‘(B) EXCEPTIONS.—Such term shall not 23 include— 24 VerDate Sep 11 2014 07:27 Mar 07, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 1040 IH ‘‘(i) items described in subparagraphs 1 (B) and (C) of paragraph (1), and 2 ‘‘(ii) items for personal use not in 3 connection with any business activity. 4 ‘‘(C) EXCHANGES.—For purposes of this 5 section, the amount treated as paid in connec- 6 tion with the exchange of property or services 7 is the fair market value of the property or serv- 8 ices exchanged, plus any money paid. 9 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTERMEDI- 10 ATION SERVICE ACTIVITIES.—In the case of the business 11 activity of providing financial intermediation services, the 12 taxable income from such activity shall be equal to the 13 value of the intermediation services provided in such activ- 14 ity. 15 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM- 16 PLOYEE.—For purposes of this section, the term ‘business 17 activity’ does not include the performance of services by 18 an employee for the employee’s employer. 19 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX- 20 CESS DEDUCTIONS.— 21 ‘‘(1) IN GENERAL.—If the aggregate deductions 22 for any taxable year exceed the gross active income 23 for such taxable year, the credit-equivalent of such 24 excess shall be allowed as a credit against the tax 25 VerDate Sep 11 2014 21:31 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 1040 IH imposed by this section for the following taxable 1 year. 2 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC- 3 TIONS.—For purposes of paragraph (1), the credit- 4 equivalent of the excess d [Text truncated for display. 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