Subject: Freedom Flat Tax Act
Comment: The Freedom Flat Tax Act of 2005
U.S. Representative Michael C. Burgess (TX-26)
1721 Longworth House Office Building
June 10, 2005
I would like to thank President Bush for his leadership on tax reform, as well as the members of this panel for their service. I believe that this is one of the most important issues facing our nation today. I am pleased to have the opportunity to offer my Freedom Flat Tax proposal to the Tax Reform Panel for consideration.
I would first like to associate myself with former Majority Leader Armey's written comments, which he submitted to this panel during the May 12, 2005 hearing in Washington, DC.
In 1996, long before I even considered running for Congress, I picked up a copy of Dr. Armey's book and read it from cover to cover. At that time, I believed that it was a common sense proposal and I still believe that today.
I have enormous respect for Leader Armey and am grateful for his leadership on this issue. I am glad that he continues to champion for the flat tax because I believe that his expertise is invaluable to the debate.
Having said that, I would like to offer the Freedom Flat Tax Act (H.R. 1040 in the 109th Congress) to the panel for consideration. The Freedom Flat Tax Act is a modified version of the Armey-Shelby flat tax. I have included the text of the Freedom Flat Tax Act with my written comments for your review. Rather than describe my entire proposal, which is extremely similar to the Armey-Shelby Flat Tax, I would like to describe the major differences between the two proposals.
I believe that Mr. Stephen Moore, who testified before this panel on May 12, 2005, discussed the basic concept behind the Freedom Flat Tax Act of 2005. The largest difference between the Armey-Shelby Flat Tax and the Freedom Flat Tax Act is that my bill would create an optional flat tax system. It would leave it up to individual taxpayers to decide when to opt-into the flat tax.
The reason that this opt-in clause is so critical can be illustrated by the Tax Reform Act of 1986 (P.L. 99-514), which was the last time that the tax code has been reformed. As this panel knows, The Tax Reform Act of 1986 both broadened the tax base and lowered marginal rates. After its passage, people who had made financial decisions based on the tax laws of the time woke up one morning to discover that the rules had changed overnight. The sudden changes to the tax code made by the Tax Reform Act of 1986 had a significant negative impact on the energy and real estate sectors of the economy in Texas.
While I believe that the best tax system is one that does not encourage individuals to make financial decisions based on the tax code, our current system does just that and we need to recognize that fact as we make changes. I believe that it is fundamentally unfair to penalize people who have played by the rules by changing the rules in the middle of the game.
That is why the Freedom Flat Tax Act allows taxpayers to make a one-time, permanent election to the flat tax system. Taxpayers can either remain in the current income tax system, or they can opt into the new, streamlined and simplified flat tax system. It allows taxpayers who have bought a house with the assumption that they could deduct their home mortgage interest to decide if it would be to their financial advantage to jump to the flat tax. If it were me, I'd gladly give up my home mortgage interest deduction in order to opt into the pro-growth flat tax. But not everyone is the same.
Under the Freedom Flat Tax Act, the decision to move to a single rate system would be entirely up to the individual or business, not up to the government. If someone has constructed their domestic finances, or their business finances, in a way that maximizes earnings under the current federal income tax code, they would be allowed to stay within the code. We should not penalize taxpayers for doing what we encouraged them to do in the first place.
There would be no ability to move between the two systems. The Taxpayer Bill of Rights would, however, extend to flat tax electors in order to provide the "innocent spouse" protection that is provided in current law.
There are other minor differences, but the proposals are otherwise very similar in concept. For example, The Freedom Flat Tax Act contains inflation-adjusted numbers for the personal exemptions and the wording of the supermajority provision, which requires a supermajority of Congress to vote in order to increase the tax rate or change the tax structure, is different than the Armey-Shelby proposal.
In conclusion, I urge the panel to consider The Freedom Flat Tax Act, as well as the Armey-Shelby Flat Tax proposal. As Dr. Armey, Dr. Hall, Mr. Moore, and Mr. Forbes all discussed in their testimony to the panel, I believe that the flat tax has a lot to offer America.