FUNDAMENTAL TAX REFORM PROPOSALS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TAX POLICY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MARCH 22, 2016 

Serial No. 114–TP05 

Printed for the use of the Committee on Ways and Means 

( 

U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

22–335 2017

FUNDAMENTAL TAX REFORM PROPOSALS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TAX POLICY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MARCH 22, 2016 

Serial No. 114–TP05 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

TOM RICE, South Carolina 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

DAVID STEWART, Staff Director 

JANICE MAYS, Minority Chief Counsel and Staff Director 

SUBCOMMITTEE ON TAX POLICY 

CHARLES W. BOUSTANY, JR., Louisiana, Chairman 

DAVID G. REICHERT, Washington 

PATRICK J. TIBERI, Ohio 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

RICHARD E. NEAL, Massachusetts 

JOHN B. LARSON, Connecticut 

LINDA SA ́ NCHEZ, California 

MIKE THOMPSON, California 

LLOYD DOGGETT, Texas 

iii 

C O N T E N T S 

Page 

Advisory of March 22, 2016 announcing the hearing ........................................... 2 

WITNESSES 

The Honorable Michael C. Burgess, a Representative in Congress from the 

State of Texas ....................................................................................................... 51 

The Honorable Devin Nunes, a Representative in Congress from the State 

of California .......................................................................................................... 5 

The Honorable Robert Woodall, a Representative in Congress from the State 

of Georgia .............................................................................................................. 70 

SUBMISSIONS FOR THE RECORD 

Alliance for the Defeat of Citizenship Taxation (ADCT) ...................................... 216 

American Council of Life Insurers (ACLI) ............................................................. 218 

American Craft Spirits Association (ACSA) .......................................................... 220 

American Retirement Association (ARA) ............................................................... 222 

American Veterinary Medical Association (AVMA) .............................................. 224 

Americans for Fair Taxation (FAIRtax) ................................................................. 226 

B. Quinton ................................................................................................................ 236 

Charles P. and Mary Lynn Bailey .......................................................................... 237 

Concerned U.S. Citizens .......................................................................................... 240 

Credit Union National Association (CUNA) .......................................................... 299 

Daar Fisher .............................................................................................................. 307 

David H. Leake, CAPT, USNR–Ret ....................................................................... 310 

David Nicol ............................................................................................................... 313 

Deborah Lee Soloway .............................................................................................. 315 

Eric Hooper .............................................................................................................. 316 

Georgy Keating ........................................................................................................ 320 

Heather Etchevers ................................................................................................... 322 

James Foley .............................................................................................................. 323 

James Stehr ............................................................................................................. 324 

Jason Pedley ............................................................................................................. 327 

Jeffrey Locke ............................................................................................................ 329 

Jo and Roger Corlett ............................................................................................... 330 

Joe Citizen ................................................................................................................ 331

John Dacey ............................................................................................................... 333 

John K. Dahlke ........................................................................................................ 335 

Jude Ryan ................................................................................................................. 337 

Kathryn Millirons Baston ....................................................................................... 341 

Kevin Kent Caldwell ............................................................................................... 342 

Leo Brunelle ............................................................................................................. 344 

Let Freedom Ring .................................................................................................... 346 

Marco Sewald ........................................................................................................... 348 

Matthew Lykken ...................................................................................................... 355 

National Governors Association (NGA) ................................................................. 362 

National Retail Federation (NRF) .......................................................................... 370 

National Association of Truck Stop Operators (NATSO) ..................................... 374 

Patheon Pharmaceuticals, Incorporated ................................................................ 378 

Paul Livingston ........................................................................................................ 388 

Reginald Callaway ................................................................................................... 391 

Ronald K. Evans ...................................................................................................... 393 

Sophie Corlett .......................................................................................................... 399 

Todd Stoudt .............................................................................................................. 400 

Tony B. Graham ...................................................................................................... 409 

Victor Rush ............................................................................................................... 411 

(1) 

FUNDAMENTAL TAX REFORM PROPOSALS 

TUESDAY, MARCH 22, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON TAX POLICY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:40 p.m., in 

Room 1100, Longworth House Office Building, Hon. Charles W. 

Boustany, Jr. [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON TAX POLICY 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Tuesday, March 15, 2016 

No. TP–05 

Chairman Boustany Announces Member Day 

Hearing on Fundamental Tax Reform Proposals 

House Ways and Means Tax Policy Subcommittee Chairman Charles Boustany 

(R–LA), today announced that the Subcommittee will hold a hearing on Member 

proposals relating to fundamental reform of the income tax system. The hearing 

will take place on Tuesday, March 22, 2016, in Room 1100 of the Longworth 

House Office Building, beginning at 2:30 p.m. 

This hearing will focus in particular on cash-flow and consumption-based approaches to taxation. It will be the first in a series of Subcommittee hearings on 

tax reform proposals by Members of Congress, with the next hearing focused on 

income-based approaches to taxation. 

Oral testimony at this hearing will be limited to Members of Congress who either 

have introduced or cosponsored legislation that presents an alternative to the current income-based approach to taxation. Members wishing to testify at this hearing 

should contact the Subcommittee at (202) 225–5522 or robert.cusmano@mail.house 

.gov by no later than noon on Friday, March 18, 2016. However, any individual or 

organization not scheduled for an oral appearance may submit a written statement 

for consideration by the Committee and for inclusion in the printed record of the 

hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page 

of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you would like to make a submission, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a 

Word document, in compliance with the formatting requirements listed below, by 

the close of business on Tuesday, April 5, 2016. For questions, or if you encounter technical problems, please call (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any materials submitted for the printed 

record, and any written comments in response to a request for written comments 

must conform to the guidelines listed below. Any submission not in compliance with 

these guidelines will not be printed, but will be maintained in the Committee files 

for review and use by the Committee. 

1. All submissions and supplementary materials must be submitted in a single 

document via email, provided in Word format and must not exceed a total of 10 

pages. Witnesses and submitters are advised that the Committee relies on electronic 

submissions for printing the official hearing record. 

3 

2. All submissions must include a list of all clients, persons and/or organizations 

on whose behalf the witness appears. The name, company, address, telephone, and 

fax numbers of each witness must be included in the body of the email. Please exclude any personal identifiable information in the attached submission. 

3. Failure to follow the formatting requirements may result in the exclusion of 

a submission. All submissions for the record are final. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available online at 

http://www.waysandmeans.house.gov

f 

/. 

Chairman BOUSTANY. The Subcommittee will come to order, 

and welcome to the Ways and Means Subcommittee on Tax Policy. 

And today we are going to have a Member Day, where we will hear 

a number of bills from Members regarding fundamental tax reform 

proposals. 

This is really the first in a series of hearings on fundamental tax 

reform, and we are honored to have three of our esteemed colleagues join us today so we can learn about the bills they have developed to take the tax system in a new direction, by moving away 

from income as the tax base and instead looking to cash-flow or 

consumption as a tax base that is more conducive to economic 

growth. These are important ideas, in which our colleagues have 

invested an enormous amount of time and energy. It shows the seriousness of their commitment to the effort to develop a pro-growth 

tax system for the 21st century. 

It is abundantly clear that our current Tax Code is broken. We 

are saddled with a Code that is littered with exclusions, deductions, and special rules, a Code that has grown to more than 4 million words, and that doesn’t include all the forms, schedules, worksheets, and instructions that are required for Americans to comply 

with the law. The Code is so complex that Americans devote billions of hours a year to tax compliance, and they also spend tens 

of billions of dollars a year on tax preparation software or professional services. Imagine if all that time and money could be put to 

more productive use instead, jump-starting our lackluster economy. 

As we focus on tax reform, we want to take a fresh look and consider all ideas and proposals, including the three important proposals being presented today. Ultimately, the Ways and Means 

Committee must weave the most pro-growth concepts and ideas 

into a bold plan that fundamentally and comprehensively reforms 

our tax system: A tax reform plan that suitably marks this year’s 

30th anniversary of the last overhaul of the tax system. 

This hearing is just the beginning. The Subcommittee will continue to solicit and evaluate all ideas. We will be holding our next 

hearing on April 13th to examine Member bills that make fundamental reforms within the context of an income-based tax system. 

4 

So thank you again to each of our witnesses for taking time from 

your busy schedules to be with us today, and we look forward to 

hearing about your bold proposals. 

And now I yield to the distinguished Ranking Member of the 

Subcommittee, Mr. Neal, for the purposes of an opening statement. 

Mr. NEAL. Thank you, Mr. Chairman, for calling this hearing 

and considering once again fundamental tax reform proposals. We 

are all aware of the great need to reform our broken and inefficient 

Tax Code, while replacing it with a Code that promotes job growth, 

lifts wages for all workers, and grows the middle class. 

One of the challenges, I think, for all of us today is to make sure 

we are not sitting here for the 35th anniversary of 1986. And the 

truth is that this is very difficult work, it is very complex work. 

There is broad agreement on what needs to be done; there is less 

agreement on how to do it. And that is the challenge we face. 

We all know that tax reform cannot wait. The economy, clearly, 

cannot wait. And certainly the American people cannot wait. Today’s hearing is yet another in a long line of hearings that we have 

had on this matter when both sides were in the Majority. I express 

my frustration at this hearing because oftentimes, even with the 

best proposals that step forward, they get caught up in partisan 

politics and we end up going backward, rather than forward. 

So, I want to take a moment to commend my friend and former 

Chairman of the Committee, Dave Camp. He put out a very earnest effort at reforming our Tax Code, the best effort since Chairman Rostenkowski in 1986. There were parts of his plan that I disagreed with, but I want to tell you the way that it was done with 

methodical bipartisanship is a very important model, as we go forward. The bipartisan effort included Members and stakeholders 

alike. We heard from everybody over the course of 3 years. 

Now, rather than building on this effort, we are instead holding 

another hearing on tax reform, instead of trying to roll up our 

sleeves and actually doing the hard work that reform invites. As 

time passes, the Code gets older, more inefficient, less competitive. 

Mr. Chairman, we are now on the verge of the opportunity to 

really do something, to get to work and put out a meaningful draft. 

Now is the time to reform the Code. And I thank you. 

Chairman BOUSTANY. I thank the gentleman. Without objection, other Members’ opening statements will be made part of the 

record. 

Today’s witness panel includes three of our fellow Members of 

the House of Representatives: The Honorable Devin Nunes, representing the 22nd District of California, and a Member of the 

Ways and Means Committee. He will be testifying about H.R. 4377, 

the American Business Competitiveness Act of 2015, which would 

tax businesses based on their cash-flow, rather than based on their 

income. 

We will also hear from the Honorable Michael Burgess, representing the 26th District of Texas. He will be testifying about 

H.R. 1040, the Flat Tax Act, which would provide businesses and 

individuals with an election to be taxed at a flat rate, and to be 

taxed on a cash-flow basis for business activities. 

And we will also hear from the Honorable Rob Woodall, representing the 7th District of Georgia. He will testify about H.R. 25, 

5 

the Fair Tax Act of 2015, which would impose a national sales tax 

on gross payments for the use or consumption of taxable property 

or services. 

Each of your tax reform bills will be made part of the formal 

hearing record. Traditionally, the Committee allots 5 minutes to 

each witness to deliver oral remarks. However, today we will be 

somewhat lenient on the 5-minute rule, but just a bit, to ensure 

that each of you can fully introduce your proposals. 

So, we will begin with you, Mr. Nunes. 

STATEMENT OF HON. DEVIN NUNES, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. NUNES. Well, thank you, Chairman Boustany and Ranking 

Member Neal, for inviting me to testify today before the Tax Policy 

Subcommittee. It is nice to be down here with the common folks, 

instead of up there. 

It is my honor to present H.R. 4377, the American Business 

Competitiveness Act, known as the ABC Act, a business tax reform 

plan that I have been developing for several years. I look forward 

to your questions and our continued dialogue on comprehensive tax 

reform. 

Many Republicans and Democrats agree the United States needs 

to adopt a broad-based consumption tax. We are paying the price 

through fewer jobs, less economic growth, and less tax revenue for 

being one of the only developed countries in the world without one. 

Most of the world’s consumption taxes are sales taxes or valueadded taxes, but the ABC Act is different. It would encourage business investment by allowing 100 percent expensing in the current 

year. This means that companies of any size, no matter how they 

are organized, would pay no tax on any of their spending for personnel, equipment, property, or any other expenditure related to 

the operation of their business in the United States. 

Today income tax penalizes new investment, but the ABC Act 

would eliminate that penalty, rapidly spurring economic growth. 

First and foremost, the ABC Act applies to all business entities, 

regardless of their structure, including corporations, S corporations, 

partnerships, sole proprietorships, LLCs, and any other business 

entity. The bill would lower the maximum tax rate on net business 

income to 25 percent. Anything a company purchases, including 

property, services, compensation, and inventory would be fully expensed. With full expensing, all the business tax credits and deductions littered throughout the Tax Code would be systematically 

eliminated. 

The bill also replaces our complicated, duplicative, and uncompetitive international rules with a simple territorial system. In an 

increasingly interconnected world, we need to boost our global competitiveness. The ABC Act would achieve that goal by undoing our 

worldwide tax so that American businesses are only taxed on income effectively connected with business inside the United States. 

All the complicated deferral rules would be wiped away, leaving us 

with a simple and fair territorial Code. The only fee companies 

would pay for repatriating foreign-held earnings up to date in the 

United States would be a one-time toll charge of 5 percent assessed 

6 

in the first year of enactment—on undistributed foreign earnings 

minus dividends paid out in that year. 

When combined with immediate expensing and new, lower tax 

rates, these provisions would make America the largest tax haven 

in the world. Companies would be scrambling back to reinvest 

money in the United States. This would boost American jobs, increase GDP, and spark widespread investment in all sectors of the 

economy. 

The ABC Act will not only kickstart economic growth, but it will 

also allow for the allocation of investment and decisionmaking 

based on best business practices, not the Tax Code. Inefficient business models based on our current Tax Code would be rendered irrelevant. 

The current Tax Code is over 70,000 pages long, and is plagued 

with senseless regulations and special interest loopholes. This unfairly benefits big businesses, which are often armed with highpriced accountants and tax attorneys who find ways to exploit the 

complicated provisions. Every day Americans who dream of starting their own business quickly realize that they lack the resources 

to fight these complex rules and regulations. 

My plan would drastically simplify the Tax Code by eliminating 

all the pet credits and deductions for businesses, which would no 

longer be necessary with full expensing. 

In my home State of California, where tax and business regulations are exceedingly convoluted, the ABC Act would vastly improve the business climate and encourage entrepreneurship. In 

fact, the ABC Act would provide every American the opportunity 

to start up a business without being penalized with steep taxes and 

burdensome regulations. Though this bill makes no changes to the 

individual Code, other than bringing down the rate on interest income, this efficient, fair, and simple plan would completely revamp 

business taxes in order to give all citizens a shot at the American 

dream of owning their own business. 

It is increasingly clear that simply lowering the corporate tax 

rate or adjusting specific provisions of the Code will not yield dramatic economic growth or drastically increase the number of startups. Instead, businesses of all sizes will continue to be burdened 

by a bewildering, punitive Tax Code, while jobs and investment 

will continue to transfer overseas. 

That is why I have been working on eliminating the income tax 

and moving to a consumption tax. The ABC Act does exactly that. 

The bill has 29 cosponsors representing a diverse cross-section of 

Members. 

And I look forward to your questions. I yield back. 

[The submission of The Honorable Devin Nunes follows:] 

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Chairman BOUSTANY. Thank you. 

Dr. Burgess, you may proceed. 

STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Chairman. Thank you for holding 

this hearing. And I just want to say how grateful I am to the 

Chairman of the full Committee, Kevin Brady. 

You know, as the landscape stretches out ahead of us for the remainder of this term and whatever happens in the next term, I do 

feel that the accumulated weight of desire for some type of fundamental tax reform will finally achieve that goal. 

Now, as Mr. Woodall knows, this is the point in the discussion 

where I usually play a few lines from a Sheryl Crow song, ‘‘Can’t 

Cry Anymore.’’ She says, ‘‘Money comes in, but the fact is I don’t 

make enough to pay my taxes.’’ And I want to help Sheryl Crow. 

I want to help simplify her life, because I understand how—— 

Chairman BOUSTANY. Mr. Burgess, that is the suspicion we 

have, that you want to help Sheryl Crow. 

[Laughter.] 

Mr. BURGESS. Well, the truth is, I want to help every American. And it is—we have made life so difficult for the average citizen with our Tax Code. And this Subcommittee knows it much better than I. I mean I am just a simple country doctor. What do I 

know about tax policy? Next to nothing. And I will readily admit 

that. 

But let me just tell you my own personal journey with the Flat 

Tax Act. It actually goes back to calendar year 1993. Bill Clinton 

and I that year earned exactly—exactly—the same amount of 

money. But when Bill Clinton’s taxes were published in the newspaper and I calculated his effective tax rate, it was 19 percent. 

When I calculated my effective tax rate—remember the tax increases that were retroactive for the rich and the dead in 1993— 

I fell into that category. Not dead, but certainly well off. And my 

tax rate was 32 percent. 

Why that discrepancy? Why treat one American citizen who happens to have a very well-paying job—the President of the United 

States—why treat that person preferentially, as opposed to someone who is delivering your health care late at night in their local 

hospital? 

So, I started on this journey. And then, in 1995, my predecessor, 

Representative Dick Armey, Majority Leader Dick Armey, published a book called ‘‘The Flat Tax.’’ I read it on a—actually, I was 

on my way to a medical convention. I bought it at the airport. I 

read it and it was like a revelation. Why don’t we do this? Why 

don’t we simplify? Why don’t we give people back, if not money, the 

gift of time, the amount of time it takes to keep that shoebox full 

of receipts and prepare your taxes every year? 

I actually spoke to Representative Armey about it early in 1996. 

He assured me that President Dole would sign the bill into law 

early in 1997. But, as we all know, history took a different turn 

that year. So here we are today, many years later, still talking 

about some of these things. 

52 

But again, I believe the accumulated weight of desire to affect 

the Tax Code in a positive way has reached the point where something is, in fact, going to happen. 

Now, look. This idea is not new to me. Congressman Armey obviously had a bill to create a flat tax. The Hall-Rabushka proposals 

from years before. The concept is simple. You fill out a form, your 

amount of income less some personal deductions and some family 

deductions. I have the form up there. It is really pretty simple. It 

is a one-page form. Fill it out on a postcard and mail it in. The obvious takeaway from that is you don’t have to spend all of those 

hours and dollars with your accountant every year. 

My own personal situation, I have 2 half-days blocked off while 

we are out of session the next couple of weeks to accomplish this 

for myself. It is complicated. Even when everyone under the sun 

knows what the United States congressman earns, I still have to 

go through this exercise every year, lest I do something wrong and 

be called to account for it. 

But you could fill out a simple postcard. You could fill out a simple return, and then everyone of the same income level would pay 

the same amount. It would have no bearing on the cleverness or 

astuteness of your accountant. It is just a fact of life. 

And this was well illustrated by Ben Carson during one of the 

prayer breakfasts a few years ago. He related it to biblical tithing. 

My rate is a little higher than the biblical tithing rate, but he said, 

‘‘If 10 percent is good enough for God, it ought to be good enough 

for the IRS.’’ You know, again, my rate is a little higher. 

The other thing that is different in the bill that I have introduced, H.R. 1040, different from what Congressman Armey had introduced previously, is that it is voluntary. If you like your tax, you 

can keep your tax. Can we just go ahead and say that, and make 

it as plain as day, that if you like your life under the Code, you 

don’t have to change a thing, you can stay there. 

But if you have reached the point where your frustration level 

is high enough, and the difficulty with keeping up with all of the 

pieces of paper is high enough, you could opt in to a flat tax. You 

can only make the election one time, there would be a 19 percent 

rate for 3 years, followed by 17 percent for every year subsequent 

to that. 

My belief is that you would not run two systems simultaneously 

for long because giving people back the gift of time and simplicity 

in their lives, and allowing them—letting them make the choice. 

Rather than us making the choice that you are going to go into a 

flat tax, you are going to go into a consumption tax, rather than 

us making the choice, let people decide for themselves when the 

time in their life is right for them to elect into a flat tax. 

I stand by to answer your questions. I thank you for the opportunity. 

[The submission of The Honorable Michael Burgess follows:] 

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Chairman BOUSTANY. Thank you, Dr. Burgess. 

Mr. Woodall, you may proceed. 

STATEMENT OF HON. ROBERT WOODALL, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. WOODALL. Thank you, Mr. Chairman. I appreciate you and 

the Ranking Member holding this hearing. I—reading the Wall 

Street Journal today, big data firms strike tax inversion deal. Why? 

Because our friends in the UK offer a 25 percent rate and we have 

a 35 percent rate. I agree with what Mr. Nunes has said about trying to lower that corporate rate, eliminating the deductions and exemptions. I agree with what the good doctor from Texas said about 

having all American families pay the same rate, ending the disparity. 

But rather than dealing with it from an income perspective, I 

deal with it from a consumption perspective. And, like the good 

doctor from Texas, this is not a new idea. H.R. 25, the Fair Tax, 

while it is the most widely cosponsored fundamental tax reform 

proposal in the House, while its roots are in bipartisanship—we 

first had one Republican and one Democrat, we then had two Republicans and two Democrats, then four Republicans and four 

Democrats, then two of those Democrats retired and one of those 

Democrats became Republican, and our bipartisanship was lost. 

But we started down that road. 

And this goes back, not just through Congressman John Linder, 

not just through Congressman Schaffer from Colorado, not just 

from Senator Dick Lugar, who pushed the sales tax back—it goes 

all the way back to Governor Jerry Brown, who I believe ran for 

President on this same kind of platform, this idea that we should 

be encouraging savings, we should be encouraging productivity, we 

should be dealing with consumption. 

I do share the Ranking Member’s frustration that we are talking 

about it again, rather than doing something about it. Though, Mr. 

Chairman, it has been 15 years, by my count, since this Committee 

last held a Members panel to talk about the big fundamental proposals. And I am grateful to you for putting this on the calendar. 

It hasn’t happened in years past. 

I have the front page from a Joint Committee on Taxation tax 

modeling project from 1997. This was when Bill Archer was running the Committee. And absolutely every group they brought in 

from the left to the right, modeling a consumption tax relative to 

our current system, said we could grow the American economy 

faster with a consumption tax. I could support any consumption tax 

we are talking about here. I think mine is best. I just need us to 

start moving. Mine is the furthest down the road. I want us on this 

road getting started. 

Fair Tax does a couple of things no other proposal does. It takes 

the corporate tax rate to zero. This fiction that businesses pay 

taxes has to be stopped. Businesses don’t pay taxes. They collect 

them from their employees in lower wages, they collect them from 

their consumers in higher prices, or they collect them from their 

holders of capital in lower rates of return. Businesses do not pay 

taxes, they collect taxes from other entities and pass them along. 

I think we should be honest about that. 

71 

My proposal deals with the payroll tax. Eighty percent of American families pay more in payroll taxes than they pay in income 

taxes, and yet we seem obsessed with the income Tax Code. If you 

really want to help working families move up that ladder, you have 

to deal with the payroll Tax Code. The Fair Tax does that. 

And the Fair Tax recognizes that compliance is not just an expense, not just a disincentive, but a solvable problem. You may not 

know, but the economic census that the Census Bureau conducts 

tells us that 908 businesses in this country sell 60 percent of all 

the product. The bottom—or the top 10 percent, 8.8 percent of businesses in this country, sell 87 percent of all of the product. 

What I am proposing is moving the Tax Code away from 200 million individual American citizens and families, having them pay 

the tax when they purchase goods at the retail level, but have the 

tax collection and payment, the auditing process, focused on those 

folks who are doing the selling. Take businesses out of the role of 

paying taxes, but leave them in the role of collecting taxes. Take 

citizens out of the role of having to report taxes, leave them in the 

role of paying taxes. 

It frustrates me that I look at former Soviet bloc countries and 

they are all moving to low-rate, simple, consumption-based taxes. 

If it is good enough for the Soviet Union former republics to grow 

their economies, it has to be good enough to grow ours. 

I know if you sit on this Committee it is easy to see how picking 

winners and losers through the Tax Code can help Americans to 

succeed more. I don’t want to do that. And I understand the kind 

of authority that takes away from this Committee and it takes 

away from this institution. 

But what I propose is a Tax Code with no exemptions, no exceptions, no deductions, just a simple rebate for folks up to povertylevel spending to insulate the poor from being punished, and a freefor-all above that level. If you drive that Mercedes, you pay for it. 

If you drive that used Ford Fiesta, we believe you deserve a break. 

And with that, Mr. Chairman, thank you so much for having me 

here today. 

[The submission of The Honorable Robert Woodall follows:] 

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Chairman BOUSTANY. Well, thank you. All of you have given 

really excellent testimony and—about these ideas. And so we will 

now move to some questions. 

I—we all hear about the complexity in the Tax Code, the unfairness of it, when we go back to our districts. And our current income 

tax system certainly has very complex cost recovery rules that 

allow business investments to be recovered over time. In some 

cases over a period of many years. And the three bills today all 

have rules for business investments that are very different from 

the current Code. 

I would like each of you to describe—how does your bill change 

the impact of tax on investment decisions by business? Just briefly 

kind of cover that for the record. 

Mr. NUNES. Well, I think, clearly, a lot of—all three of these 

bills do something similar, because it moves to a consumptionbased system. If you look at what—the way that we attacked this 

in the ABC Act is we take all business activity and you essentially 

are taxed on your net cash-flow. So you take your income, minus 

your expenses in that calendar year, so at the end of the year 

whatever is left over you will pay tax on. 

And what this does is encourages investment. So, unlike today, 

when you have—everybody has a special credit, or some deduction, 

or something that they want, where they are gaming out, like a lot 

of my constituents do and like I used to have to do before I was 

elected to Congress, you have to—by the end of the year you have 

to say, ‘‘Okay, what can I buy that the Tax Code allows me to 

buy?’’ And I am not sure that that is really—it wasn’t an efficient 

use of my time, it wasn’t an efficient use of capital, and it sure 

didn’t help create jobs. 

And so, I think that that is how my bill achieves this, and I 

think the other bills are very similar, but tweaked just slightly different. 

Chairman BOUSTANY. Dr. Burgess. 

Mr. BURGESS. I spent most of my time talking about the individual income tax. There would also be a similar flat tax option for 

businesses, as well. 

Essentially, the bill, as written, would eliminate the capital gains 

tax. As far as the tax imposed on business activities, the deductions 

that would be allowed would be the cost of business inputs for the 

business activity, wages, and retirement contributions. So I—my 

assumption is that, since retirement contributions are removed 

from—are an allowable deduction, that those would not be adversely affected by the implementation or the election to a flat tax. 

Chairman BOUSTANY. And Mr. Woodall. 

Mr. WOODALL. Mr. Chairman, by eliminating business taxes all 

together, you no longer have the Tax Code involved in those decisions. 

I confess I am confused why, as Americans, we are trying to get 

ourselves in the middle of the pack, in terms of corporate tax rates. 

We are leaders in America. I want to be the leader of the pack in 

that space, wherever that turns out to be. Again, if we want to tax 

employees, tax employees. If you want to tax consumers, tax consumers. If you want to tax return to capital, tax return to capital. 

204 

But, more importantly, the Fair Tax—again, the only proposal in 

Congress to eliminate the payroll tax, and that is going to impact 

the decision to invest in people. And if there is one thing we need 

this Tax Code to encourage, it is buy all the robotics you want to, 

but I need you to invest in people and workers, and the Fair Tax 

does that. 

Chairman BOUSTANY. Thank you. And I guess a followup question is, you know, many businesses use debt now to fund investment and growth. We have heard a lot of testimony from experts 

about the problems associated with debt financing and the risk associated with all that. 

But maybe comment, each of you, about what the impact would 

be on business with regard to debt financing, and how business is 

actually funded and how investments are carried out. Mr. Woodall, 

do you want to start? 

Mr. WOODALL. Because there would be no deductions, because 

there would be no tax at all, there would be no benefit to debt financing, and—under the Fair Tax there would be no deduction for 

those interest payments. So whether you wanted to finance 

through debt or whether you wanted to finance through equity, the 

Fair Tax would treat you the same. 

Chairman BOUSTANY. Dr. Burgess. 

Mr. BURGESS. Under the business tax section, the carryover 

of—credit equivalent of excess deductions, if in any year your deductions would exceed the amount of money posted in the—as a 

profit, that can carry over to subsequent years. So there would not 

be a penalty for not having—you would not lose the ability to have 

credit for those carryover expenses. 

Chairman BOUSTANY. Mr. Nunes. 

Mr. NUNES. So the way that it works is that, you know, in order 

to have a real consumption tax to function properly, you can’t allow 

for interest expense. I think that is the primary—I think that gets 

to the heart of what your question is. 

And that is just—you know, so what does it do in the big picture? 

We really don’t know, because nothing like this has ever been tried. 

I think when you start to game this out, and you look at what— 

business models that people have, those business models will all 

have to change, because people will be spending their time—similar 

to my example earlier—focusing on what they need to invest in, not 

how they have to structure their company and how much debt load 

they have to incur. 

So it would open up all sorts of new investment opportunities for 

the companies that are—a lot of the companies, the big equity companies in Boston, they would end up changing. I think it would 

benefit a lot of new investment-type equity firms that would have 

to develop. The banks would develop new products because capital 

would be more readily available under a plan like this. 

Chairman BOUSTANY. And one final, last question. Two of the 

proposals have been around for a while in some form. Mr. Nunes, 

yours is a new proposal. We have had a lot of discussion within the 

Committee about, should we proceed along the lines of the 1986 reform approach, you know, using the income tax as the base, or do 

we move to something different. 

205 

And I think, Mr. Woodall, you mentioned earlier the need to be 

competitive, to leapfrog ahead of our competitors. Do you think the 

timing—talk to me a little bit about the timing of these new proposals with regard to tax reform. Is the timing right? Should we 

really move forward in this direction, or should we, you know, perhaps consider the 1986 reform model as the way to go? 

Mr. WOODALL. Mr. Chairman, what I liked about the 1986 reform model was the collaborative way in which it took place. I don’t 

know of any other way to do the big things that we have to do in 

this country. 

But inversions are one of those things that bring us together. 

Why is it that folks want to leave? This is the best place in the 

world to do business. Why are we running folks off? I think it is 

the right time for that. 

And more than that, from a consumption tax perspective, we 

have a billion new middle-class consumers coming online in India, 

a billion new middle-class consumers coming online in China. If 

there is ever going to be a time to talk about bringing manufacturing back to America, getting back to our exporting roots, that 

time is now. 

Chairman BOUSTANY. Thanks. Dr. Burgess. 

Mr. BURGESS. You know, I wasn’t here in 1986, but I was running a medical practice in 1986. It was a hard year in Texas. Energy prices collapsed, we had the collapse of savings and loans. 

Real estate prices went downhill, and that was exacerbated by the 

fact that things that used to be called tax shelters, bad business 

ideas that people would invest in—so that they could shelter dollars from income taxes at a much higher rate, those tax shelters 

went away, literally, overnight with the imposition of the 1986 Tax 

Code. 

Good thing or bad thing I am not here to decide. But what I do 

remember is there was a significant amount of disruption in the 

lives of people. That is why the concept that I am putting forward 

is a voluntary election that someone will decide that, hey, I want 

to change my Tax Code, rather than us decide up here in Washington. The time might not be propitious for someone back home 

to make a major change. They may have done significant investment. 

Scott Burns, who writes a financial column for the Dallas Morning News in my paper back home, always references the home 

mortgage deduction. The home mortgage deduction in San Antonio, 

Texas, when you really put pencil to paper in the average sales 

price of a home in San Antonio, you are really just pushing around 

a few dollars on a page. But if you bought a starter castle in Santa 

Barbara, and we suddenly alter the deductibility of your home 

mortgage, that is a big deal. 

So what I like about the ability for the constituent to decide is 

they decide when the time is right for them. As I said, if you like 

your tax you can keep your tax. If you want your life out of the 

Code, that is your decision. Now, of course, you can’t go in and out 

as whatever would be favorable for you. 

But look, I remember the 2012 election. There was a lot of heartburn over the fact that Mitt Romney only paid an effective tax rate 

of 13 or 14 percent. We are going to put him in 19 percent for 3 

206 

years, and then 17 percent thereafter. He is going to be paying 

more tax. Fundamentally, that is a fairer thing. 

Chairman BOUSTANY. Thanks. Mr. Nunes. 

Mr. NUNES. I really believe part of what led me to where this— 

where I am today with this legislation was when you try to do 

across-the-board reform it is very, very difficult, because everybody 

has their favorite credit. You have—the entire economy has been 

built upon the Code. 

And so, by taking the business activity and separating that out, 

anyone who is involved, or most people who are involved in business activity in the United States of America have accountants, 

lawyers, somebody—you know, even in my family small business 

we had—you know, had to have an accountant to do our—pay our 

taxes and file our tax returns. 

So I think it is achievable because it doesn’t disrupt the wage 

side of the equation. To be honest with you, in a perfect world, I 

would prefer to have something more full-scale, like what Dr. Burgess is talking about or what Mr. Woodall is talking about. But 

part of what went into this calculation is what is actually achievable under the circumstances that we face today. 

And, look, anything we do is going to take Republicans and 

Democrats. I think that what I said in my testimony is Republicans 

and Democrats both agree on a few things: One, that we need to 

switch to a consumption-based system; and, two, that we need to 

fix—move to some type of territorial system. Those have to be done. 

Those are two things that we agree on. Why don’t we do them, but 

let’s do them in a way—one step at a time? 

Chairman BOUSTANY. Thank you. I now yield to the Ranking 

Member, Mr. Neal. 

Mr. NEAL. Thank you, Mr. Chairman. I appreciate the historic 

references, obviously, because I knew those individuals, I came 

here 2 years after that historic act. And those individuals, including Bradley and Gephardt, Rostenkowski, Packwood, Reagan, and 

O’Neill, they all saw that as one of their finest moments, because 

they were overcome—they were able to overcome the short-term objections. 

And not to miss the point that there were winners and losers 

that were created by what they did in 1986, but this is a much different atmosphere in which we all served—I mean we serve now. 

I mean that was a calm, rational, fact-based discussion of virtually 

every item. 

And a reminder, there was more opposition on the Republican 

side to what Dave Camp did than there was on the Democratic 

side. I think that is a fair statement. I advise colleagues on this 

Committee specifically to be very careful how they handle some of 

the Camp proposals because, in fact, they were long overdue and 

they were very, very genuine. 

But Devin, to your point—and correct me if I am wrong—you 

mentioned a 5 percent repatriation rate. And how did you arrive 

at that number? 

Mr. NUNES. Largely because it was—I kind of looked at all the 

different pieces of legislation that were out there that were dealing 

with the funds that are sitting overseas now, and that was kind of 

207 

right in the middle. So I thought it was kind of a compromise of 

what Republicans, Democrats all over the spectrum wanted to do. 

And so, remember, when you—it is only necessary one time. If 

you switch to a system like the ABC Act, then you move to a territorial system, and then people can bring back money how they 

wish. But I just put, for repatriating the dollars that are sitting 

overseas now, a one-time fee of 5 percent. That is how I arrived at 

it. 

Mr. NEAL. Just again with institutional memory here, when we 

did this, when Chairman Thomas was the author of the major piece 

of legislation on that, we brought it back at—it was brought back 

over our objections at five-and-a-quarter. And the premise of the 

return was job creation. 

In this town, broadly, think tanks would all come to the same 

conclusion: There was no job creation. The money was passed on 

to shareholders. Now, if that had been the premise that was offered, then we could have had an honest debate about that. But the 

argument instead was, this is going to spur a lot of new investment. And that really didn’t happen. I think that is a fair statement. 

So there is some suspicion as to the rate, and the Administration 

has proposed a 19 percent minimum tax, which I assume is negotiable. So we should perhaps begin to have a conversation along 

those lines, because we all agree that you can’t have trillions of dollars sitting offshore for non-productive purposes when it could be 

better invested back here. 

And to Mr. Woodall, to your comment about the proposal that 

you have offered, the Bush treasury examined that proposal, and 

they came to the conclusion that it wouldn’t work. That is W’s Administration. His Treasury Department examined it from A to Z 

and they came to the conclusion that you run the risk of creating 

a whole new entitlement program in America. 

Mr. WOODALL. I certainly would not point to the Bush Administration as the place to go for good fundamental tax reform. He 

had a chance to reform the Code and he chose Social Security over 

tax reform. 

They also said that our proposal did the most for low-income 

American families to lift them from that one rung on the ladder up 

to the next. I think that is important. And thinking about the good 

old days, I would remind the Ranking Member that in those Rostenkowski days of calmness and reasonableness, the Catastrophic 

Care Act had his car being rocked left and right. Those days were 

raucous days, too. I still think we have an environment in which 

we can do this together. 

Mr. NEAL. Right, but it—I remember the description of what 

happened on that day. And remember, I was one of the ones that 

voted to repeal that Act. So there was—again, we weren’t locked 

into the silos of partisanship. And I can tell you it certainly increased my name recognition with Chairman Rostenkowski that I 

voted to repeal that. 

[Laughter.] 

I thank the gentleman. 

Chairman BOUSTANY. I thank the gentleman. 

Mr. Tiberi. 

208 

Mr. TIBERI. Thank you, Mr. Chairman. Thanks for holding this 

hearing. 

You know, Mr. Neal, before I leave here, it is probably going to 

be called the Camp-Levin-Obama tax draft. 

[Laughter.] 

I just—I don’t seem to remember Democrats rushing to be supportive of it, in fairness. 

Mr. NEAL. Would the gentleman yield? 

Mr. TIBERI. I would love to yield to you, Mr. Neal. 

[Laughter.] 

Mr. NEAL. Mr. Larson is a witness to what I suggested in our 

caucus about how to respond to the Camp tax proposal. There were 

things in there that a Democrat would not have done. That was 

really—there were a lot of bipartisan things that Dave Camp did. 

Mr. TIBERI. Sure. 

Mr. NEAL. And I remember the fury when that proposal was released. 

And just another example to the newer Members, 52 Members of 

your caucus signed a letter to him. 

Mr. TIBERI. Sure. 

Mr. NEAL. That never would have happened in those days that 

Mr. Woodall described. There really would have been a let’s digest 

it and talk about this calmly, quietly, and have a discussion. 

Mr. TIBERI. So, Mr. Nunes, as you know, I am a cosponsor of 

your legislation. I appreciate your hard work. And, you know, 

whether it is your proposal or Mr. Burgess’ proposal or Mr. 

Woodall’s proposal—and, by the way, you might want to take this 

on the road. When I originally ran for Congress, Mr. Armey did a 

road show that was quite entertaining. You guys are just about 

there. 

So, as a former small—the smallest of business owners, I was a 

one-person business, as a realtor, I am always concerned about, in 

terms of reform, what a reform proposal will do, how it will impact 

someone like I was, as a realtor. 

And so, Mr. Nunes, I will ask you first. As someone who paid his 

business income through his personal return, how would the ABC 

Act—first question—impact the small business owners? 

And a concern that I have heard—and if you could, clear up for 

me with respect to the ABC Act—how last-in, first-out accounting 

is impacted, how LIFO inventory under LIFO would be treated 

under the ABC Act. 

Mr. NUNES. Well, with LIFO we do away with it, because it is 

no longer necessary. A lot of the reason that we have LIFO now— 

and it is part of the example that I was giving earlier—at the end 

of the year, businesses have to start to dodge and weave their way 

over what inventory they are going to carry. It is a complete, you 

know, waste of people’s time, and it is an inefficient use of one’s 

resources. 

So, the way it works now—under the ABC Act—is business buys 

what they need to buy, and they put it in their inventory. And so, 

you know, effectively, you can—as long as you are growing and investing, you can actually drive your effective tax rate pretty low. 

But if you don’t want to grow, you don’t want to invest, then you 

are going to pay the 25 percent rate. 

209 

As it affects a small businessman, I mean, from my perspective, 

I wrote it with that in mind. Because as someone who was dealing 

with the horrible Tax Code—especially in agriculture—that I 

worked in, it was very confusing, very complex, remains complex 

today. We have had to deal with some of those issues in last year’s 

tax bill. 

So, I think this is just very simple, because—as in your case, you 

would just take all your business income that you have, you minus 

off your expenses, what you use on your wage side. You would 

pay—you would be under the old system, effectively. 

Now, look, it goes back to what I said earlier. I don’t believe on 

the wage side we need to keep the system the way it is. I think 

it needs to be simplified. But, you know, that has to be figured out, 

how you get to that point. I think the Camp draft actually had a 

lot of good proposals in terms of what you could do on the wage 

side. 

Mr. TIBERI. Mr. Burgess, Mr. Woodall, do you have any comments? 

Mr. BURGESS. One of the things that struck me when I was in 

a small business like you, I was given advice that, in order to keep 

the dire wolf from the door, I ought to keep 3 months of operating 

capital in a readily-accessible liquid CD at the time. The problem 

with doing that is you go to the end of a calendar year, and the 

next year, if you bring that money out, it is brought out at your 

individual tax rate. 

So I, in fact, did that and got significantly criticized by my partners because then the money was paid out to partners in the corporation. They, in turn, paid at the highest rate. So we were taxed 

twice on that same money, but it seemed like a prudent business 

decision. And I guess part of my idea with the business side of this 

is we don’t punish people for making prudent business decisions. 

I think it is a good idea to store up some surplus in good times to 

guard against the bad times. 

Mr. WOODALL. And, Mr. Tiberi, in our proposal the small business owner would still have to deal with the tax man by collecting 

taxes from whatever it was they were selling. But they wouldn’t 

have to interpret the Tax Code, because it would just be those collections that would happen on each purchase that went out the 

door, everything being taxed once but only once. 

Chairman BOUSTANY. Mr. Larson. 

Mr. LARSON. Thank you, Mr. Chairman. This has been an enlightening day. We had a great hearing earlier this morning on fixing Social Security, or a portion thereof. And I especially appreciate 

it when Members get an opportunity to come before a committee. 

And it doesn’t happen often enough. And the Congress, at the end 

of the day, should be about the vitality of ideas, and how we interact with those ideas, and how we interact with one another and 

hopefully achieve those bipartisan or non-partisan ends that we all 

would like to see. And I think everyone acknowledges in order to 

move the Nation, or to move a bill forward, that is exactly what 

we need. 

A lot of these—you know, a lot of the proposals here have been 

around for some time. That doesn’t mean that they still don’t have 

salience. Also, I think not to discuss these things—and, frankly, 

210 

other forms of taxation—where there is broad agreement that we 

need reform, where there is broad agreement that we have to be 

more competitive, especially in manufacturing States like the State 

of Connecticut, there does seem to be an awful lot of reasonable 

ground. 

One of the questions I have that came up in your testimony—and 

feel free any one of you or all three of you to answer—is in dealing 

with the various consumption and Fair Tax proposals, how do you 

treat the payroll tax vis a vis FICA, or the Social Security program 

that we talked about this morning? 

Mr. BURGESS. Under H.R. 1040 it would not change. 

Mr. LARSON. Okay. 

Mr. NUNES. Same for my proposal. 

Mr. WOODALL. We would abolish the FICA tax as it exists, and 

build it into the purchase price of every item that you buy. Included in our rate is a statutory payment to the Social Security and 

Medicare trust funds, up to the amount of payroll. 

Mr. LARSON. How would that work, exactly? 

Mr. WOODALL. We anticipate this Committee solving our Social 

Security issues for generations to come. But in the interim we 

would say employers would still need to report their payroll so that 

we could properly credit that amount of FICA tax. But it would 

come from the sales, not from—— 

Mr. LARSON. One of the things that I hope the Committee—and 

we addressed this earlier today—that I hope that we focus on is 

looking at the Social Security issue as one—as you all know, Social 

Security, by law, has to sustain solvency for 75 years. Now we are 

not remotely close to that. And I think sustainability and solvency 

are the key words here to restore trust in the American people so 

that any underlying tax proposal—that if you have the trust of the 

American people going forward, you have the ability to sale—to sell 

your program. 

Further, I really believe—and again, tailing on the—or building 

upon the discussion we had earlier today, I really think that if we 

treat Social Security like a premium, which it is—it is called the 

Federal Insurance Contribution Act—and the contribution is yours, 

a.k.a. the citizen and the business who pays, that we bipartisanly 

can come to a very simplistic resolution. 

The thing I admire about your proposals is the simplicity. There 

is doubts about the efficiency, but we ought to be open to hear 

those. And, of course, we are very concerned about regressivity on 

our side of the aisle, and what that would mean to people, and 

whether or not you get there by dynamic scoring, and what that 

truly means. 

But certainly, all of these proposals, and certainly proposals that 

come from Members, are something that we ought to be discussing 

in this Committee. I commend Chairman Brady for doing that, 

Chairman Boustany for bringing it up. The more we engage like 

that—and I think the beauty of what Dave Camp did is he said, 

‘‘Look, let’s get out of the spotlight. Let’s make it Members-toMembers.’’ You are the best representatives of your constituents. 

You are out there talking with them all the time. It would be nice 

if we had more of these conversations. 

211 

I appreciate all the experts that we bring before the Committee, 

but you are the expert in your district, and we ought to hear more 

from you. Thank you for being here today. 

Chairman BOUSTANY. I thank the gentleman. 

Mr. Renacci. 

Mr. RENACCI. Thank you, Mr. Chairman. I really appreciate 

your doing this. I hope we can do additional panels like this. It is 

good to hear different proposals. I really appreciate all of you and 

your ideas. 

I am going to ask you some questions based on a CPA that has 

been in business, and not only practices as a CPA, but also is in 

business. And I think every one of your programs has some good 

points. I am going to touch on the negative side. And hopefully you 

can give me some answers on that, and just tell me what your 

thoughts are. 

First off, Mr. Nunes, I will start with you. I go back to my—how 

I started out in business. I had very little. I was able to go to a 

bank, borrow some money, get started in a nursing home business. 

There was a competitor down the road who had a lot more money, 

so he was able to acquire the asset, he was able to buy the building. I couldn’t. I had to just buy the operation and lease it. 

So, he, on the other hand, under your proposal, would have a— 

if you are picking winners and losers, he would be a winner. He 

would have a deduction that I wouldn’t have. He would be able to 

expense that facility, and I would be sitting over here having to 

pay a 25 percent tax on my earnings, based on your proposal. 

So the concern I have in that case is the picking of winners and 

losers: The guy who can afford to capitalize his business and the 

guy who can’t. The small guy like myself, now, I was successful 

enough over 25 years to be able to build the business and acquire 

those assets down the road. But that is because we were in the system we are in today. So that is one question: How do you—help me 

on that one. 

And the other question—which is so concerning for me—is without that interest deduction I would definitely not be able to compete with them, because that is the only deduction I had, where he 

would be able to capitalize or write off his building. 

Mr. NUNES. So, thank you, Mr. Renacci. We have had discussions about this in the past. And I think you are very thoughtful 

and clearly have experience at dealing with this. 

I think one of the challenges that a lot of people have when they 

first look at this tax bill, the ABC bill specifically, is they look at 

it through the lenses of an income tax. And that is one of the challenges that I have when I am dealing with the business people is 

because they are looking at it like income tax. It is going to be income tax, just like income tax has always been, not realizing that 

this does away with the income tax for all business activity in the 

United States, and it becomes a consumption tax. 

So, I would argue that whatever that business model was—because I am not, you know, familiar with how you started out—that 

would not be the business model if this system was put into place. 

So, for example, you know, how would you do it? Well, I think 

there would be some—as I talked about earlier, about different equity opportunities that would come up, there would be so many 

212 

more equity opportunities, because you would have so many more 

Americans that perhaps don’t have a lot of capital, but what little 

capital they do have they would take risks with people like yourself. Today, those people don’t invest. They really have no other options but to maybe invest in the stock market. They have no opportunity to get—invest in small business. 

And so, I think those types of investors would be open especially 

to a small business person like yourself. And so, when you come 

to the end of the year, what you would do, if you are continuing 

to grow as a small businessman, the end of the year you have— 

whatever money you have left over, you might want to go out that 

December and you might want to go out and make investments so 

that you don’t get taxed at that 25 percent rate that year. 

Mr. RENACCI. The only other response I would have is that— 

I think I told you this on the floor—I am not too sure I would want 

to have 10 or 12 partners. I kind of like the idea, as you are growing a business, just to have the bank as a partner. Then you just 

have to answer to one. I wouldn’t want 10 or 12 people trying to 

tell me how to operate, which is the negative side of having equity 

investors. 

But I do appreciate that. I am supportive of a consumption. I just 

don’t know how two business models exactly the same—one has 

more capital, can buy the building, one who can’t, one of them is 

going to be a winner, one of them is going to be a loser. 

Mr. Woodall, I do 100 percent believe with you—believe what you 

said. Businesses do not pay taxes. And once we get to that point, 

if everybody can agree to that—because they pass it on—we can reduce the rate. 

Explain to me under your plan, which is the down side of the 

Fair Tax, that somebody who has lived their whole life, saved up 

money, paid taxes at 36 percent, 38 percent, whatever, now is sitting with a savings account, they are elderly, and all their spending, they are going to have a double taxation. They have already 

paid tax once, they are going to pay tax again. Explain how that 

is good for that individual. 

Mr. WOODALL. It is a rotten deal, generationally. Just the bottom line. We can either decide that because we are stuck in a bad 

deal today our kids are going to have to be stuck in that bad deal, 

too, or we can decide we are going to get the bad deal but our kids 

are going to do better. 

But many seniors living at the low end of the income spectrum— 

our prebate allows folks up to the poverty level to live tax free. We 

insulate Social Security payments against any one-time inflationary jump that may happen because of the imposition of a doubledigit sales tax in the economy. Any sort of inflationary jump would 

be captured in outgoing Social Security payments. 

And finally, my hope is we would put the economy on fire. And 

folks, instead of getting a quarter percent on their CD or 2 percent 

on their bond, are going to get back into the 6, 7, 8 percent yields 

that they deserve. 

Mr. RENACCI. Mr. Burgess, I know I am pretty much out of 

time, but the one question I would have for you is you said that 

you can opt into your system. So if I am not paying taxes today, 

I am going to stay in the current system. But if I am paying 38 

213 

percent I am going to opt into your system. That is going to bring 

the treasury—the dollars coming into the treasury significantly 

down, because you are going to—everybody is going to pick the 

lower side, and you are going to have a rate of at least 19 percent 

or less, because the people who are already paying less than 19 

percent aren’t going to opt in. So how would you fix that disparity? 

Mr. BURGESS. Well, and with all due deference to your profession, the answer lies in the simplicity. Look, I have to visit my accountant every year and make sure I have spent down the equity 

of my corporation to where I am not going to be taxed. If you 

elect—and this would be a voluntary election, no one is going to 

force you into it, but if you elect into the flat tax, then that is going 

to be the rate from that day forward. 

On your question about the difference in treatment for someone 

who has bought the building and someone who I presume then is 

renting the building, that is treated equally under the section on 

inputs, business inputs in the flat tax, whether it is the cost of a 

building purchased, or the cost of rental. It is treated identically for 

the person who is invested in the building. That would be phased 

in over time, over the—the credit allowance would be phased in 

over time. 

Mr. RENACCI. Thank you, gentlemen. I appreciate your input. 

I yield back. 

Chairman BOUSTANY. I thank the gentleman. 

Mr. Holding. 

Mr. HOLDING. Thank you. 

Mr. Nunes, I believe in response to Mr. Tiberi’s question you addressed the impact of your proposal, which I am a very proud cosponsor of, the impact of your proposal on pass-throughs. You 

know, pass-through businesses employ about 50 percent of the private-sector workforce and earn more than 64 percent of all business income. And I believe your answer to him covers my concerns 

there. 

But you know, there is another type of business—I mean they 

may be pass-throughs or C corps, and these are innovative pre-revenue start-up companies, you know, small businesses throughout 

the country, particularly in my part of North Carolina and pharmaceutical areas and technology sectors, as well as in my little area 

of North Carolina. And a lot of these companies faced losses for 

years before finally making a profit. 

In fact, some of these aren’t such small companies. I was reading 

an article that Twitter has been around for 10 years, and I don’t 

think it has ever made a profit. So how would these companies be 

taxed in fair—under your proposal? 

Mr. NUNES. Well, the—sometimes, to develop new technology, it 

takes investment like that. And I actually feel that—and this gets 

to Mr. Renacci’s question also—that the current Tax Code is inhibiting innovation. Lack of capital is inhibiting innovation. And so, 

this proposal is perfect for those types of businesses that have to 

make huge investments year after year after year to develop technology in order to achieve the technology in order to then get to 

profitability. 

And so, what we really want—I mean through all these consumption taxes we talk about businesses not paying taxes. Essentially, 

214 

that is what the consumption tax allows, as long as you are consuming. And that is what we are trying to get to, and that is what 

this proposal does. 

Mr. HOLDING. And your proposal, Mr. Nunes, as well as Dr. 

Burgess’ and Mr. Woodall’s, you know, truly would upend the system. And new business models would have to arise, you know, from 

these tax proposals, which gets me to the thought of transition. 

You know, we have companies that, you know, have hundreds of 

millions, if not billions of dollars of tax credits stored up, you know, 

deferrals, so forth. And that is baked into their business models for 

years to come. So I will just go down the line, ask each one of you 

your thoughts on transition, kind of big-picture thoughts on 

transitioning, you know, to this new form of taxation. So I will 

start with you—— 

Mr. NUNES. Well, thank you, Mr. Holding. And we spent a lot 

of time with this proposal, thinking about just that. We have—because we are only dealing with business activity, and everybody 

that pretty much is in business, as I said earlier, has accountants 

and lawyers or advisors, you will be able to—there will—the transition—the needed transition will be known, for sure, by this Committee and these Members if you move a proposal like this, because 

everybody that would need transition would be in here. 

We have identified a lot of that. I am not sure how much is actually needed or not needed. You know, when you truly put the option to accompany—okay, you are saying you need some transition, 

but if your option is no transition but you get this new Code, would 

you take no transition? And I think oftentimes the answer is yes. 

But, for example, we do allow for loss carry-forward to be sort 

of businesses who have incurred losses or businesses who have 

made big investments to still be able to write those expenses off. 

Mr. HOLDING. Dr. Burgess. 

Mr. BURGESS. And under the—this section deals with the carryover of credit equivalent or excess deductions. And Mr. Renacci 

pointed out if a company is not paying taxes now, under a voluntary election to a flat tax, could continue under the model that 

they are in, where they are not paying any taxes. And that might 

be a satisfactory arrangement. 

But if they elected to go into a flat tax system and their deductions were in excess of their earnings, obviously there would be no 

tax liability at the end of the year. And that is based on an accrual 

method over time, that those deductions can accumulate and carry 

over from year to year, so the cost of capital for starting a business 

would be expensed over time. 

Mr. HOLDING. Mr. Woodall. 

Mr. WOODALL. Mr. Holding, when folks play by the rules, they 

ought to get—their expectations ought to be met. The 1986 transition crushed folks, crushed commercial real estate, crushed folks in 

passive loss circumstances. Even as recently as the President’s 

healthcare bill—I met with a couple who was in the tanning business, and that 10 percent gross receipts tax on tanning salons— 

they had been working their entire life playing by the rules, and 

now their asset was virtually worthless, because they weren’t making that kind of margin. There is no satisfactory explanation for 

215 

the folks who are going to lose because they have been playing by 

a convoluted set of rules for the last decade. 

But as Milton Friedman said when he testified before George 

Bush’s tax panel, it may just be time to wipe the slate clean. We 

have one transition rule in the Fair Tax, and that is on inventory. 

If you bought inventory and the taxes were all baked in throughout 

the system, you shouldn’t have to double tax that as you are trying 

to move that inventory out of the system. 

But I hope we will not let the unmet expectations of folks who 

have been playing by the rules prevent us from wiping the slate 

clean. And perhaps, if we do wipe the slate clean, we will never 

have to have the conversation about folks who counted on Congress 

maintaining the Tax Code in a constant state, only to be let down. 

Mr. HOLDING. Thank you. Thank you, Mr. Chairman. 

Chairman BOUSTANY. I thank the gentleman. We want to 

thank you guys for bringing these really important proposals forward. It is really a valuable addition to our—what we are looking 

at as we really are all committed to fundamental tax reform. 

So, also be aware that over the next 2 weeks there may be some 

additional questions we will submit to you in writing, and we ask 

you to follow up and answer those. 

And, with that, the Subcommittee stands adjourned. 

[Whereupon, at 4:41 p.m., the Subcommittee was adjourned.] 

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