SMART Act

II 117TH CONGRESS 1ST SESSION S. 1653 To repeal the current Internal Revenue Code and replace it with a flat tax, thereby guaranteeing economic growth and fairness for all Americans. IN THE SENATE OF THE UNITED STATES MAY 17, 2021 Mr. SHELBY introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To repeal the current Internal Revenue Code and replace it with a flat tax, thereby guaranteeing economic growth and fairness for all Americans. 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; TABLE OF CONTENTS. 3 (a) SHORT TITLE.—This Act may be cited as the 4 ‘‘Simplified, Manageable, And Responsible Tax Act’’ or 5 the ‘‘SMART Act’’. 6 (b) TABLE OF CONTENTS.— 7 Sec. 1. Short title; table of contents. TITLE I—TAX REDUCTION AND SIMPLIFICATION Sec. 101. Individual income tax. Sec. 102. Tax on business activities. VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6211 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 2 •S 1653 IS 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 1 SIMPLIFICATION 2 SEC. 101. INDIVIDUAL INCOME TAX. 3 (a) IN GENERAL.—Section 1 of the Internal Revenue 4 Code of 1986 is amended to read as follows: 5 ‘‘SECTION 1. TAX IMPOSED. 6 ‘‘There is hereby imposed on the taxable income of 7 every individual a tax equal to 17 percent of the taxable 8 income of such individual for such taxable year.’’. 9 (b) TAXABLE INCOME.—Section 63 of the Internal 10 Revenue Code of 1986 is amended to read as follows: 11 ‘‘SEC. 63. TAXABLE INCOME. 12 ‘‘(a) IN GENERAL.—For purposes of this subtitle, the 13 term ‘taxable income’ means the excess of— 14 ‘‘(1) the sum of— 15 ‘‘(A) wages (as defined in section 3121(a) 16 without regard to paragraph (1) thereof) which 17 are paid in cash and which are received during 18 the taxable year for services performed in the 19 United States, 20 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 3 •S 1653 IS ‘‘(B) retirement distributions which are in- 1 cludible in gross income for such taxable year, 2 plus 3 ‘‘(C) amounts received under any law of 4 the United States or of any State which is in 5 the nature of unemployment compensation, over 6 ‘‘(2) the standard deduction. 7 ‘‘(b) STANDARD DEDUCTION.— 8 ‘‘(1) IN GENERAL.—For purposes of this sub- 9 title, the term ‘standard deduction’ means the sum 10 of— 11 ‘‘(A) the basic standard deduction, plus 12 ‘‘(B) the additional standard deduction. 13 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur- 14 poses of paragraph (1), the basic standard deduction 15 is— 16 ‘‘(A) $29,190 in the case of— 17 ‘‘(i) a joint return, or 18 ‘‘(ii) a surviving spouse (as defined in 19 section 2(a)), 20 ‘‘(B) $18,630 in the case of a head of 21 household (as defined in section 2(b)), and 22 ‘‘(C) $14,590 in the case of an indi- 23 vidual— 24 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 4 •S 1653 IS ‘‘(i) who is not married and who is 1 not a surviving spouse or head of house- 2 hold, or 3 ‘‘(ii) who is a married individual filing 4 a separate return. 5 ‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For 6 purposes of paragraph (1), the additional standard 7 deduction is $6,290 for each dependent (as defined 8 in section 152) who is described in section 151(c) 9 for the taxable year and who is not required to file 10 a return for such taxable year. 11 ‘‘(c) RETIREMENT DISTRIBUTIONS.—For purposes of 12 subsection (a), the term ‘retirement distribution’ means 13 any distribution from— 14 ‘‘(1) a plan described in section 401(a) which 15 includes a trust exempt from tax under section 16 501(a), 17 ‘‘(2) an annuity plan described in section 18 403(a), 19 ‘‘(3) an annuity contract described in section 20 403(b), 21 ‘‘(4) an individual retirement account described 22 in section 408(a), 23 ‘‘(5) an individual retirement annuity described 24 in section 408(b), 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 5 •S 1653 IS ‘‘(6) an eligible deferred compensation plan (as 1 defined in section 457), 2 ‘‘(7) a governmental plan (as defined in section 3 414(d)), or 4 ‘‘(8) a trust described in section 501(c)(18). 5 Such term includes any plan, contract, account, annuity, 6 or trust which, at any time, has been determined by the 7 Secretary to be such a plan, contract, account, annuity, 8 or trust. 9 ‘‘(d) INCOME OF CERTAIN CHILDREN.—For purposes 10 of this subtitle— 11 ‘‘(1) an individual’s taxable income shall include 12 the taxable income of each dependent child of such 13 individual who has not attained age 14 as of the 14 close of such taxable year, and 15 ‘‘(2) such dependent child shall have no liability 16 for tax imposed by section 1 with respect to such in- 17 come and shall not be required to file a return for 18 such taxable year. 19 ‘‘(e) INFLATION ADJUSTMENT.— 20 ‘‘(1) IN GENERAL.—In the case of any taxable 21 year beginning in a calendar year after 2022, each 22 dollar amount contained in subsection (b) shall be 23 increased by an amount determined by the Secretary 24 to be equal to— 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 6 •S 1653 IS ‘‘(A) such dollar amount, multiplied by 1 ‘‘(B) the cost-of-living adjustment for such 2 calendar year. 3 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur- 4 poses of paragraph (1), the cost-of-living adjustment 5 for any calendar year is the percentage (if any) by 6 which— 7 ‘‘(A) the CPI for the preceding calendar 8 year, exceeds 9 ‘‘(B) the CPI for the calendar year 2021. 10 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur- 11 poses of paragraph (2), the CPI for any calendar 12 year is the average of the Consumer Price Index as 13 of the close of the 12-month period ending on Au- 14 gust 31 of such calendar year. 15 ‘‘(4) CONSUMER PRICE INDEX.—For purposes 16 of paragraph (3), the term ‘Consumer Price Index’ 17 means the last Consumer Price Index for all-urban 18 consumers published by the Department of Labor. 19 For purposes of the preceding sentence, the revision 20 of the Consumer Price Index which is most con- 21 sistent with the Consumer Price Index for calendar 22 year 1986 shall be used. 23 ‘‘(5) ROUNDING.—If any increase determined 24 under paragraph (1) is not a multiple of $10, such 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 7 •S 1653 IS increase shall be rounded to the next highest mul- 1 tiple of $10. 2 ‘‘(f) MARITAL STATUS.—For purposes of this section, 3 marital status shall be determined under section 7703.’’. 4 SEC. 102. TAX ON BUSINESS ACTIVITIES. 5 (a) IN GENERAL.—Section 11 of the Internal Rev- 6 enue Code of 1986 (relating to tax imposed on corpora- 7 tions) is amended to read as follows: 8 ‘‘SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES. 9 ‘‘(a) TAX IMPOSED.—There is hereby imposed on 10 every person engaged in a business activity a tax equal 11 to 17 percent of the business taxable income of such per- 12 son. 13 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 14 section shall be paid by the person engaged in the business 15 activity, whether such person is an individual, partnership, 16 corporation, or otherwise. 17 ‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of 18 this section— 19 ‘‘(1) IN GENERAL.—The term ‘business taxable 20 income’ means gross active income reduced by the 21 deductions specified in subsection (d). 22 ‘‘(2) GROSS ACTIVE INCOME.— 23 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 8 •S 1653 IS ‘‘(A) IN GENERAL.—For purposes of para- 1 graph (1), the term ‘gross active income’ means 2 gross receipts from— 3 ‘‘(i) the sale or exchange of property 4 or services in the United States by any 5 person in connection with a business activ- 6 ity, and 7 ‘‘(ii) the export of property or services 8 from the United States in connection with 9 a business activity. 10 ‘‘(B) EXCHANGES.—For purposes of this 11 section, the amount treated as gross receipts 12 from the exchange of property or services is the 13 fair market value of the property or services re- 14 ceived, plus any money received. 15 ‘‘(C) COORDINATION WITH SPECIAL RULES 16 FOR FINANCIAL SERVICES, ETC.—Except as 17 provided in subsection (e)— 18 ‘‘(i) the term ‘property’ does not in- 19 clude money or any financial instrument, 20 and 21 ‘‘(ii) the term ‘services’ does not in- 22 clude financial services. 23 ‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF 24 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA- 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 9 •S 1653 IS NIZATIONS.—For purposes of this section, the term 1 ‘business activity’ does not include any activity of a 2 governmental entity or of any other organization 3 which is exempt from tax under this chapter. 4 ‘‘(d) DEDUCTIONS.— 5 ‘‘(1) IN GENERAL.—The deductions specified in 6 this subsection are— 7 ‘‘(A) the cost of business inputs for the 8 business activity, 9 ‘‘(B) wages (as defined in section 3121(a) 10 without regard to paragraph (1) thereof) which 11 are paid in cash for services performed in the 12 United States as an employee, and 13 ‘‘(C) retirement contributions to or under 14 any plan or arrangement which makes retire- 15 ment distributions (as defined in section 63(c)) 16 for the benefit of such employees to the extent 17 such contributions are allowed as a deduction 18 under section 404. 19 ‘‘(2) BUSINESS INPUTS.— 20 ‘‘(A) IN GENERAL.—For purposes of para- 21 graph (1), the term ‘cost of business inputs’ 22 means— 23 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 10 •S 1653 IS ‘‘(i) the amount paid for property sold 1 or used in connection with a business ac- 2 tivity, 3 ‘‘(ii) the amount paid for services 4 (other than for the services of employees, 5 including fringe benefits paid by reason of 6 such services) in connection with a busi- 7 ness activity, and 8 ‘‘(iii) any excise tax, sales tax, cus- 9 toms duty, or other separately stated levy 10 imposed by a Federal, State, or local gov- 11 ernment on the purchase of property or 12 services which are for use in connection 13 with a business activity. 14 Such term shall not include any tax imposed by 15 chapter 2 or 21. 16 ‘‘(B) EXCEPTIONS.—Such term shall not 17 include— 18 ‘‘(i) items described in subparagraphs 19 (B) and (C) of paragraph (1), and 20 ‘‘(ii) items for personal use not in 21 connection with any business activity. 22 ‘‘(C) EXCHANGES.—For purposes of this 23 section, the amount treated as paid in connec- 24 tion with the exchange of property or services 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 11 •S 1653 IS is the fair market value of the property or serv- 1 ices exchanged, plus any money paid. 2 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTERMEDI- 3 ATION SERVICE ACTIVITIES.—In the case of the business 4 activity of providing financial intermediation services, the 5 taxable income from such activity shall be equal to the 6 value of the intermediation services provided in such activ- 7 ity. 8 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM- 9 PLOYEE.—For purposes of this section, the term ‘business 10 activity’ does not include the performance of services by 11 an employee for the employee’s employer. 12 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX- 13 CESS DEDUCTIONS.— 14 ‘‘(1) IN GENERAL.—If the aggregate deductions 15 for any taxable year exceed the gross active income 16 for such taxable year, the credit-equivalent of such 17 excess shall be allowed as a credit against the tax 18 imposed by this section for the following taxable 19 year. 20 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC- 21 TIONS.—For purposes of paragraph (1), the credit- 22 equivalent of the excess described in paragraph (1) 23 for any taxable year is an amount equal to— 24 ‘‘(A) the sum of— 25 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 12 •S 1653 IS ‘‘(i) such excess, plus 1 ‘‘(ii) the product of such excess and 2 the 3-month Treasury rate for the last 3 month of such taxable year, multiplied by 4 ‘‘(B) the rate of the tax imposed by sub- 5 section (a) for such taxable year. 6 ‘‘(3) CARRYOVER OF UNUSED CREDIT.—If the 7 credit allowable for any taxable year by reason of 8 this subsection exceeds the tax imposed by this sec- 9 tion for such year, then (in lieu of treating such ex- 10 cess as an overpayment) the sum of— 11 ‘‘(A) such excess, plus 12 ‘‘(B) the product of such excess and the 3- 13 month Treasury rate for the last month of such 14 taxable year, 15 shall be allowed as a credit against the tax imposed 16 by this section for the following taxable year. 17 ‘‘(4) 3-MONTH TREASURY RATE.—For purposes 18 of this subsection, the 3-month Treasury rate is the 19 rate determined by the Secretary based on the aver- 20 age market yield (during any 1-month period se- 21 lected by the Secretary and ending in the calendar 22 month in which the determination is made) on out- 23 standing marketable obligations of the United States 24 VerDate Sep 11 2014 03:34 Jun 03, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1653.IS S1653 pbinns on DSKJLVW7X2PROD with BILLS 13 •S 1653 IS with remaining periods to maturity of 3 months or 1 less.’’. 2 (b) TAX ON NONCASH COMPENSATION PROVIDED TO 3 EMPLOYEES NOT ENGAGED IN BUSINESS ACTIVITY.— 4 Section 4977 of the Internal Revenue Code of 1986 is 5 amended to read as follows: 6 ‘‘SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED 7 TO EMPLOYEES NOT ENGAGED IN BUSINESS 8 ACTIVITY. 9 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 10 a tax equal to 17 percent of the v [Text truncated for display. Full text available on Congress.gov.]