HR 1040 IH
106th CONGRESS
1st Session
H. R. 1040
To promote freedom, fairness, and economic opportunity for families
by reducing the power and reach of the Federal establishment.
IN THE HOUSE OF REPRESENTATIVES
March 9, 1999
Mr. ARMEY (for himself, Mr. GOODLING, Mr. SMITH of Michigan, Mrs. CHENOWETH,
Mr. NORWOOD, and Mr. HALL of Texas) introduced the following bill; which was
referred to the Committee 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 promote freedom, fairness, and economic opportunity for families
by reducing the power and reach of the Federal establishment.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE- This Act may be cited as the `Freedom and Fairness
Restoration Act of 1999'.
Sec. 1. Short title; table of contents.
TITLE I--TAX REDUCTION AND SIMPLIFICATION
Sec. 101. Individual income tax.
Sec. 102. Tax on business activities.
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 SIMPLIFICATION
SEC. 101. INDIVIDUAL INCOME TAX.
(a) IN GENERAL- Section 1 of the Internal Revenue Code of 1986 is amended
to read as follows:
`SECTION 1. TAX IMPOSED.
`There is hereby imposed on the taxable income of every individual a tax
equal to 19 percent (17 percent in the case of taxable years beginning after
December 31, 2000) of the taxable income of such individual for such taxable
year.'
(b) TAXABLE INCOME- Section 63 of such Code is amended to read as
follows:
`SEC. 63. TAXABLE INCOME.
`(a) IN GENERAL- For purposes of this subtitle, the term `taxable income'
means the excess of--
`(A) wages (as defined in section 3121(a) without regard to paragraph
(1) thereof) which are paid in cash and which are received during the
taxable year for services performed in the United States,
`(B) retirement distributions which are includible in gross income for
such taxable year, plus
`(C) amounts received under any law of the United States or of any
State which is in the nature of unemployment compensation, over
`(2) the standard deduction.
`(1) IN GENERAL- For purposes of this subtitle, the term `standard
deduction' means the sum of--
`(A) the basic standard deduction, plus
`(B) the additional standard deduction.
`(2) BASIC STANDARD DEDUCTION- For purposes of paragraph (1), the basic
standard deduction is--
`(A) $23,200 in the case of--
`(ii) a surviving spouse (as defined in section 2(a)),
`(B) $14,850 in the case of a head of household (as defined in section
2(b)), and
`(C) $11,600 in the case of an individual--
`(i) who is not married and who is not a surviving spouse or head of
household, or
`(ii) who is a married individual filing a separate
return.
`(3) ADDITIONAL STANDARD DEDUCTION- For purposes of paragraph (1), the
additional standard deduction is $5,200 for each dependent (as defined in
section 152) who is described in section 151(c)(1) for the taxable year and
who is not required to file a return for such taxable year.
`(c) RETIREMENT DISTRIBUTIONS- For purposes of subsection (a), the term
`retirement distribution' means any distribution from--
`(1) a plan described in section 401(a) which includes a trust exempt
from tax under section 501(a),
`(2) an annuity plan described in section 403(a),
`(3) an annuity contract described in section 403(b),
`(4) an individual retirement account described in section 408(a),
`(5) an individual retirement annuity described in section 408(b),
`(6) an eligible deferred compensation plan (as defined in section
457),
`(7) a governmental plan (as defined in section 414(d)), or
`(8) a trust described in section 501(c)(18).
Such term includes any plan, contract, account, annuity, or trust which,
at any time, has been determined by the Secretary to be such a plan, contract,
account, annuity, or trust.
`(d) INCOME OF CERTAIN CHILDREN- For purposes of this subtitle--
`(1) an individual's taxable income shall include the taxable income of
each dependent child of such individual who has not attained age 14 as of
the close of such taxable year, and
`(2) such dependent child shall have no liability for tax imposed by
section 1 with respect to such income and shall not be required to file a
return for such taxable year.
`(e) INFLATION ADJUSTMENT-
`(1) IN GENERAL- In the case of any taxable year beginning in a calendar
year after 1999, each dollar amount contained in subsection (b) shall be
increased by an amount determined by the Secretary to be equal to--
`(A) such dollar amount, multiplied by
`(B) the cost-of-living adjustment for such calendar year.
`(2) COST-OF-LIVING ADJUSTMENT- For purposes of paragraph (1), the
cost-of-living adjustment for any calendar year is the percentage (if any)
by which--
`(A) the CPI for the preceding calendar year, exceeds
`(B) the CPI for the calendar year 1998.
`(3) CPI FOR ANY CALENDAR YEAR- For purposes of paragraph (2), the CPI
for any calendar year is the average of the Consumer Price Index as of the
close of the 12-month period ending on August 31 of such calendar
year.
`(4) CONSUMER PRICE INDEX- For purposes of paragraph (3), the term
`Consumer Price Index' means the last Consumer Price Index for all-urban
consumers published by the Department of Labor. For purposes of the
preceding sentence, the revision of the Consumer Price Index which is most
consistent with the Consumer Price Index for calendar year 1986 shall be
used.
`(5) ROUNDING- If any increase determined under paragraph (1) is not a
multiple of $10, such increase shall be rounded to the next highest multiple
of $10.
`(f) MARITAL STATUS- For purposes of this section, marital status shall be
determined under section 7703.'
SEC. 102. TAX ON BUSINESS ACTIVITIES.
(a) IN GENERAL- Section 11 of the Internal Revenue Code of 1986 (relating
to tax imposed on corporations) is amended to read as follows:
`SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.
`(a) TAX IMPOSED- There is hereby imposed on every person engaged in a
business activity a tax equal to 19 percent (17 percent in the case of taxable
years beginning after December 31, 2000) of the business taxable income of
such person.
`(b) LIABILITY FOR TAX- The tax imposed by this section shall be paid by
the person engaged in the business activity, whether such person is an
individual, partnership, corporation, or otherwise.
`(c) BUSINESS TAXABLE INCOME- For purposes of this section--
`(1) IN GENERAL- The term `business taxable income' means gross active
income reduced by the deductions specified in subsection (d).
`(2) GROSS ACTIVE INCOME-
`(A) IN GENERAL- For purposes of paragraph (1), the term `gross active
income' means gross receipts from--
`(i) the sale or exchange of property or services in the United
States by any person in connection with a business activity,
and
`(ii) the export of property or services from the United States in
connection with a business activity.
`(B) EXCHANGES- For purposes of this section, the amount treated as
gross receipts from the exchange of property or services is the fair
market value of the property or services received, plus any money
received.
`(C) COORDINATION WITH SPECIAL RULES FOR FINANCIAL SERVICES, ETC-
Except as provided in subsection (e)--
`(i) the term `property' does not include money or any financial
instrument, and
`(ii) the term `services' does not include financial
services.
`(3) EXEMPTION FROM TAX FOR ACTIVITIES OF GOVERNMENTAL ENTITIES AND
TAX-EXEMPT ORGANIZATIONS- For purposes of this section, the term `business
activity' does not include any activity of a governmental entity or of any
other organization which is exempt from tax under this chapter.
`(1) IN GENERAL- The deductions specified in this subsection are--
`(A) the cost of business inputs for the business activity,
`(B) wages (as defined in section 3121(a) without regard to paragraph
(1) thereof) which are paid in cash for services performed in the United
States as an employee, and
`(C) retirement contributions to or under any plan or arrangement
which makes retirement distributions (as defined in section 63(c)) for the
benefit of such employees to the extent such contributions are allowed as
a deduction under section 404.
`(A) IN GENERAL- For purposes of paragraph (1), the term `cost of
business inputs' means--
`(i) the amount paid for property sold or used in connection with a
business activity,
`(ii) the amount paid for services (other than for the services of
employees, including fringe benefits paid by reason of such services) in
connection with a business activity, and
`(iii) any excise tax, sales tax, customs duty, or other separately
stated levy imposed by a Federal, State, or local government on the
purchase of property or services which are for use in connection with a
business activity.
Such term shall not include any tax imposed by chapter 2 or
21.
`(B) EXCEPTIONS- Such term shall not include--
`(i) items described in subparagraphs (B) and (C) of paragraph (1),
and
`(ii) items for personal use not in connection with any business
activity.
`(C) EXCHANGES- For purposes of this section, the amount treated as
paid in connection with the exchange of property or services is the fair
market value of the property or services exchanged, plus any money
paid.
`(e) SPECIAL RULES FOR FINANCIAL INTER-MEDIATION SERVICE ACTIVITIES- In
the case of the business activity of providing financial intermediation
services, the taxable income from such activity shall be equal to the value of
the intermediation services provided in such activity.
`(f) EXCEPTION FOR SERVICES PERFORMED AS EMPLOYEE- For purposes of this
section, the term `business activity' does not include the performance of
services by an employee for the employee's employer.
`(g) CARRYOVER OF CREDIT-EQUIVALENT OF EXCESS DEDUCTIONS-
`(1) IN GENERAL- If the aggregate deductions for any taxable year exceed
the gross active income for such taxable year, the credit-equivalent of such
excess shall be allowed as a credit against the tax imposed by this section
for the following taxable year.
`(2) CREDIT-EQUIVALENT OF EXCESS DEDUCTIONS- For purposes of paragraph
(1), the credit-equivalent of the excess described in paragraph (1) for any
taxable year is an amount equal to--
`(ii) the product of such excess and the 3-month Treasury rate for
the last month of such taxable year, multiplied by
`(B) the rate of the tax imposed by subsection (a) for such taxable
year.
`(3) CARRYOVER OF UNUSED CREDIT- If the credit allowable for any taxable
year by reason of this subsection exceeds the tax imposed by this section
for such year, then (in lieu of treating such excess as an overpayment) the
sum of--
`(B) the product of such excess and the 3-month Treasury rate for the
last month of such taxable year,
shall be allowed as a credit against the tax imposed by this section for
the following taxable year.
`(4) 3-MONTH TREASURY RATE- For purposes of this subsection, the 3-month
Treasury rate is the rate determined by the Secretary based on the average
market yield (during any 1-month period selected by the Secretary and ending
in the calendar month in which the determination is made) on outstanding
marketable obligations of the United States with remaining periods to
maturity of 3 months or less.'
(b) TAX ON TAX-EXEMPT ENTITIES PROVIDING NONCASH COMPENSATION TO
EMPLOYEES- Section 4977 of such Code is amended to read as follows:
`SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED TO EMPLOYEES NOT ENGAGED IN
BUSINESS ACTIVITY.
`(a) IMPOSITION OF TAX- There is hereby imposed a tax equal to 19 percent
(17 percent in the case of calendar years beginning after December 31, 2000)
of the value of excludable compensation provided during the calendar year by
an employer for the benefit of employees to whom this section applies.
`(b) LIABILITY FOR TAX- The tax imposed by this section shall be paid by
the employer.
`(c) EXCLUDABLE COMPENSATION- For purposes of subsection (a), the term
`excludable compensation' means any remuneration for services performed as an
employee other than--
`(1) wages (as defined in section 3121(a) without regard to paragraph
(1) thereof) which are paid in cash,
`(2) remuneration for services performed outside the United States,
and
`(3) retirement contributions to or under any plan or arrangement which
makes retirement distributions (as defined in section 63(c)).
`(d) EMPLOYEES TO WHOM SECTION APPLIES- This section shall apply to an
employee who is employed in any activity by--
`(1) any organization which is exempt from taxation under this chapter,
or
`(2) any agency or instrumentality of the United States, any State or
political subdivision of a State, or the District of Columbia.'
SEC. 103. SIMPLIFICATION OF RULES RELATING TO QUALIFIED RETIREMENT
PLANS.
(a) IN GENERAL- The following provisions of the Internal Revenue Code of
1986 are hereby repealed:
(1) NONDISCRIMINATION RULES-
(A) Paragraphs (4) and (5) of section 401(a) (relating to
nondiscrimination requirements).
(B) Sections 401(a)(10)(B) and 416 (relating to top heavy
plans).
(C) Section 401(a)(17) (relating to compensation limit).
(D) Sections 401(a)(26) and 410(b) (relating to minimum participation
and coverage requirements).
(E) Paragraphs (3), (8), (11), and (12) of sections 401(k), and
section 4979, (relating to actual deferral percentage).
(F) Section 401(l) (relating to permitted disparity in plan
contributions or benefits).
(G) Section 401(m) (relating to nondiscrimination test for matching
contributions and employee contributions).
(H) Paragraphs (1)(D) and (12) of section 403(b) (relating to
nondiscrimination requirements).
(I) Paragraph (3) of section 408(k) and paragraph (6) (other than
subparagraph (A)(i)) of such section (relating to simplified employee
pensions).
(A) Sections 401(a)(16), 403(b) (2) and (3), and 415 (relating to
limitations on benefits and contributions under qualified plans).
(B) Sections 401(a)(30) and 402(g) (relating to limitation on
exclusion for elective deferrals).
(C) Paragraphs (3) and (7) of section 404(a) (relating to percentage
of compensation limits).
(D) Section 404(l) (relating to limit on includible
compensation).
(3) RESTRICTIONS ON DISTRIBUTIONS-
(A) Section 72(t) (relating to 10-percent additional tax on early
distributions from qualified retirement plans).
(B) Sections 401(a)(9), 403(b)(10), and 4974 (relating to minimum
distribution rules).
(C) Section 402(e)(4) (relating to net unrealized
appreciation).
(D) Section 4980A (relating to tax on excess distributions from
qualified retirement plans).
(4) SPECIAL REQUIREMENTS FOR PLAN BENEFITING SELF-EMPLOYED INDIVIDUALS-
Subsections (a)(10)(A) and (d) of section 401.
(5) PROHIBITION OF TAX-EXEMPT ORGANIZATIONS AND GOVERNMENTS FROM HAVING
QUALIFIED CASH OR DEFERRED ARRANGEMENTS- Section 401(k)(4)(B).
(b) Employer Reversions of Excess Pension Assets Permitted Subject Only to
Income Inclusion-
(1) REPEAL OF TAX ON EMPLOYER REVERSIONS- Section 4980 of such Code is
hereby repealed.
(2) EMPLOYER REVERSIONS PERMITTED WITHOUT PLAN TERMINATION- Section 420
of such Code is amended to read as follows:
`SEC. 420. TRANSFERS OF EXCESS PENSION ASSETS.
`(a) IN GENERAL- If there is a qualified transfer of any excess pension
assets of a defined benefit plan (other than a multiemployer plan) to an
employer--
`(1) a trust which is part of such plan shall not be treated as failing
to meet the requirements of section 401(a) or any other provision of law
solely by reason of such transfer (or any other action authorized under this
section), and
`(2) such transfer shall not be treated as a prohibited transaction for
purposes of section 4975.
The gross income of the employer shall include the amount of any qualified
transfer made during the taxable year.
`(b) QUALIFIED TRANSFER- For purposes of this section--
`(1) IN GENERAL- The term `qualified transfer' means a transfer--
`(A) of excess pension assets of a defined benefit plan to the
employer, and
`(B) with respect to which the vesting requirements of subsection (c)
are met in connection with the plan.
`(2) ONLY 1 TRANSFER PER YEAR- No more than 1 transfer with respect to
any plan during a taxable year may be treated as a qualified transfer for
purposes of this section.
`(c) VESTING REQUIREMENTS OF PLANS TRANSFERRING ASSETS- The vesting
requirements of this subsection are met if the plan provides that the accrued
pension benefits of any participant or beneficiary under the plan become
nonforfeitable in the same manner which would be required if the plan had
terminated immediately before the qualified transfer (or in the case of a
participant who separated during the 1-year period ending on the date of the
transfer, immediately before such separation).
`(d) DEFINITION AND SPECIAL RULE- For purposes of this section--
`(1) EXCESS PENSION ASSETS- The term `excess pension assets' means the
excess (if any) of--
`(A) the amount determined under section 412(c)(7)(A)(ii),
over
`(i) the amount determined under section 412(c)(7)(A)(i),
or
`(ii) 125 percent of current liability (as defined in section
412(c)(7)(B)).
The determination under this paragraph shall be made as of the most
recent valuation date of the plan preceding the qualified transfer.
`(2) COORDINATION WITH SECTION 412- In the case of a qualified
transfer--
`(A) any assets transferred in a plan year on or before the valuation
date for such year (and any income allocable thereto) shall, for purposes
of section 412, be treated as assets in the plan as of the valuation date
for such year, and
`(B) the plan shall be treated as having a net experience loss under
section 412(b)(2)(B)(iv) in an amount equal to the amount of such transfer
and for which amortization charges begin for the first plan year after the
plan year in which such transfer occurs, except that such section shall be
applied to such amount by substituting `10 plan years' for `5 plan
years'.'
SEC. 104. REPEAL OF ALTERNATIVE MINIMUM TAX.
Part VI of subchapter A of chapter 1 of the Internal Revenue Code of 1986
is hereby repealed.
SEC. 105. REPEAL OF CREDITS.
Part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986
is hereby repealed.
SEC. 106. REPEAL OF ESTATE AND GIFT TAXES AND OBSOLETE INCOME TAX
PROVISIONS.
(a) REPEAL OF ESTATE AND GIFT TAXES-
(1) IN GENERAL- Subtitle B of the Internal Revenue Code of 1986 is
hereby repealed.
(2) EFFECTIVE DATE- The repeal made by paragraph (1) shall apply to the
estates of decedents dying, and gifts and generation-skipping transfers
made, after December 31, 1998.
(b) REPEAL OF OBSOLETE INCOME TAX PROVISIONS-
(1) IN GENERAL- Except as provided in paragraph (2), chapter 1 of the
Internal Revenue Code of 1986 is hereby repealed.
(2) EXCEPTIONS- Paragraph (1) shall not apply to--
(A) sections 1, 11, and 63 of such Code, as amended by this
Act,
(B) those provisions of chapter 1 of such Code which are necessary for
determining whether or not--
(i) retirement distributions are includible in the gross income of
employees, or
(ii) an organization is exempt from tax under such chapter,
and
(C) subchapter D of such chapter 1 (relating to deferred
compensation).
SEC. 107. EFFECTIVE DATE.
Except as otherwise provided in this title, the amendments made by this
title shall apply to taxable years beginning after December 31, 1998.
TITLE II--SUPERMAJORITY REQUIRED FOR TAX CHANGES
SEC. 201. SUPERMAJORITY REQUIRED.
(a) IN GENERAL- It shall not be in order in the House of Representatives
or the Senate to consider any bill, joint resolution, amendment thereto, or
conference report thereon that includes any provision that--
(1) increases any Federal income tax rate,
(2) creates any additional Federal income tax rate,
(3) reduces the standard deduction, or
(4) provides any exclusion, deduction, credit or other benefit which
results in a reduction in Federal revenues.
(b) WAIVER OR SUSPENSION- This section may be waived or suspended in the
House of Representatives or the Senate only by the affirmative vote of
three-fifths of the Members, duly chosen and sworn.
END