I 

108TH CONGRESS 

1ST SESSION H. R. 1783

To amend the Internal Revenue Code of 1986 to provide taxpayers a flat 

tax alternative to the current income tax system. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 11, 2003

Mr. BURGESS (for himself, Mr. KINGSTON, Mr. BURTON of Indiana, Mr. 

BOEHNER, Mr. BARTLETT of Maryland, Mr. HALL, Mr. YOUNG of Alaska, Mr. WELDON of Florida, Mr. SESSIONS, Mr. BONILLA, Mr. SMITH

of Texas, and Mr. SCOTT of Georgia) introduced the following bill; which 

was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

taxpayers a flat tax alternative to the current income 

tax system.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Freedom Flat Tax 

5 Act’’. 
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1 SEC. 2. FREEDOM FLAT TAX. 

2 (a) IN GENERAL.—Subchapter A of chapter 1 is 

3 amended by inserting after part VII the following new 

4 part: 

5 ‘‘PART VIII-FREEDOM FLAT TAX

‘‘Sec. 60. Irrevocable election to be subject to flat tax. 

‘‘Sec. 60A. Tax imposed on individuals. 

‘‘Sec. 60B. Tax imposed on business activities. 

‘‘Sec. 60C. Tax on noncash compensation provided to employees 

not engaged in business activity.

6 ‘‘SEC. 60. IRREVOCABLE ELECTION TO BE SUBJECT TO 

7 FLAT TAX. 

8 ‘‘(a) INDIVIDUAL.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), in lieu of the tax imposed by sections 1 

11 and 55, under regulations prescribed by the Sec12 retary, an individual may make an irrevocable elec13 tion to be subject to the tax imposed by this part. 

14 ‘‘(2) INNOCENT SPOUSE EXCEPTION.—An indi15 vidual who has made an election under paragraph 

16 (1) and who subsequently obtains relief of liability 

17 for tax under section 6015(b) may, not later than 1 

18 year after the date such relief is granted, revoke the 

19 election made under paragraph (1). 

20 ‘‘(b) PERSON ENGAGED IN BUSINESS ACTIVITY.—In 

21 lieu of the tax imposed by sections 11 and 55, under regu22 lations prescribed by the Secretary, a person engaged in 
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1 business activity may make an irrevocable election to be 

2 subject to the tax imposed by this part. 

3 ‘‘SEC. 60A. TAX IMPOSED ON INDIVIDUALS. 

4 ‘‘(a) IN GENERAL.—There is hereby imposed on the 

5 taxable income of every individual who makes an election 

6 to be subject to this part a tax equal to—

7 ‘‘(1) 19 percent of the taxable income of such 

8 individual for such taxable year in the case of the 

9 first 2 taxable years of the individual beginning with 

10 the taxable year for which the election is made, and 

11 ‘‘(2) 17 percent of the taxable income of such 

12 individual for such taxable year in the case of all 

13 taxable years subsequent to the taxable years de14 scribed in paragraph (1). 

15 ‘‘(b) TAXABLE INCOME.—For purposes of this part, 

16 the term ‘taxable income’ means the excess of—

17 ‘‘(1) the sum of—

18 ‘‘(A) wages (as defined in section 3121(a) 

19 without regard to paragraph (1) thereof) which 

20 are paid in cash and which are received during 

21 the taxable year for services performed in the 

22 United States, 

23 ‘‘(B) retirement distributions which are in24 cludible in gross income for such taxable year, 

25 plus 
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1 ‘‘(C) amounts received under any law of 

2 the United States or of any State which is in 

3 the nature of unemployment compensation, over 

4 ‘‘(2) the standard deduction. 

5 ‘‘(c) STANDARD DEDUCTION.—For purposes of this 

6 part— 

7 ‘‘(1) IN GENERAL.—The term ‘standard deduc8 tion’ means the sum of—

9 ‘‘(A) the basic standard deduction, plus 

10 ‘‘(B) the additional standard deduction. 

11 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur12 poses of paragraph (1), the basic standard deduction 

13 is—

14 ‘‘(A) $25,580 in the case of—

15 ‘‘(i) a joint return, or 

16 ‘‘(ii) a surviving spouse (as defined in 

17 section 2(a)), 

18 ‘‘(B) $16,330 in the case of a head of 

19 household (as defined in section 2(b)), and 

20 ‘‘(C) $12,790 in the case of an indi21 vidual—

22 ‘‘(i) who is not married and who is 

23 not a surviving spouse or head of house24 hold, or 
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1 ‘‘(ii) who is a married individual filing 

2 a separate return. 

3 ‘‘(3) ADDITIONAL STANDARD DEDUCTION.—For 

4 purposes of paragraph (1), the additional standard 

5 deduction is $5,510 for each dependent (as defined 

6 in section 152) who is described in section 151(c)(1) 

7 for the taxable year and who is not required to file 

8 a return for such taxable year.

9 ‘‘(d) RETIREMENT DISTRIBUTIONS.—For purposes 

10 of this section, the term ‘retirement distribution’ means 

11 any distribution from—

12 ‘‘(1) a plan described in section 401(a) which 

13 includes a trust exempt from tax under section 

14 501(a), 

15 ‘‘(2) an annuity plan described in section 

16 403(a), 

17 ‘‘(3) an annuity contract described in section 

18 403(b), 

19 ‘‘(4) an individual retirement account described 

20 in section 408(a),

21 ‘‘(5) an individual retirement annuity described 

22 in section 408(b), 

23 ‘‘(6) an eligible deferred compensation plan (as 

24 defined in section 457),
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1 ‘‘(7) a governmental plan (as defined in section 

2 414(d)), or 

3 ‘‘(8) a trust described in section 501(c)(18). 

4 Such term includes any plan, contract, account, annuity, 

5 or trust which, at any time, has been determined by the 

6 Secretary to be such a plan, contract, account, annuity, 

7 or trust. 

8 ‘‘(e) INCOME OF CERTAIN CHILDREN.—For purposes 

9 of this part—

10 ‘‘(1) an individual’s taxable income shall include 

11 the taxable income of each dependent child of such 

12 individual who has not attained age 14 as of the 

13 close of such taxable year, and 

14 ‘‘(2) such dependent child shall have no liability 

15 for tax imposed by this section with respect to such 

16 income and shall not be required to file a return for 

17 such taxable year. 

18 ‘‘(f) INFLATION ADJUSTMENT.—

19 ‘‘(1) IN GENERAL.—In the case of any taxable 

20 year beginning in a calendar year after 2004, each 

21 dollar amount contained in subsection (c) shall be 

22 increased by an amount determined by the Secretary 

23 to be equal to—

24 ‘‘(A) such dollar amount, multiplied by 
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1 ‘‘(B) the cost-of-living adjustment for such 

2 calendar year. 

3 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur4 poses of paragraph (1), the cost-of-living adjustment 

5 for any calendar year is the percentage (if any) by 

6 which—

7 ‘‘(A) the CPI for the preceding calendar 

8 year, exceeds 

9 ‘‘(B) the CPI for the calendar year 2003. 

10 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur11 poses of paragraph (2), the CPI for any calendar 

12 year is the average of the Consumer Price Index as 

13 of the close of the 12-month period ending on Au14 gust 31 of such calendar year. 

15 ‘‘(4) CONSUMER PRICE INDEX.—For purposes 

16 of paragraph (3), the term ‘Consumer Price Index’ 

17 means the last Consumer Price Index for all-urban 

18 consumers published by the Department of Labor. 

19 For purposes of the preceding sentence, the revision 

20 of the Consumer Price Index which is most con21 sistent with the Consumer Price Index for calendar 

22 year 1986 shall be used. 

23 ‘‘(5) ROUNDING.—If any increase determined 

24 under paragraph (1) is not a multiple of $10, such 
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1 increase shall be rounded to the next highest mul2 tiple of $10. 

3 ‘‘(g) MARITAL STATUS.—For purposes of this sec4 tion, marital status shall be determined under section 

5 7703. 

6 ‘‘SEC. 60B. TAX IMPOSED ON BUSINESS ACTIVITIES. 

7 ‘‘(a) TAX IMPOSED.—There is hereby imposed on 

8 every person engaged in a business activity who makes an 

9 election to be taxed under this part a tax equal to—

10 ‘‘(1) 19 percent of the business taxable income 

11 of such person for such taxable year in the case of 

12 the first 2 taxable years of the individual beginning 

13 with the taxable year for which the election is made, 

14 and 

15 ‘‘(2) 17 percent of the business taxable income 

16 of such person for such taxable year in the case of 

17 all taxable years subsequent to the taxable years de18 scribed in paragraph (1). 

19 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 

20 section shall be paid by the person engaged in the business 

21 activity, whether such person is an individual, partnership, 

22 corporation, or otherwise. 

23 ‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of 

24 this section—
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1 ‘‘(1) IN GENERAL.—The term ‘business taxable 

2 income’ means gross active income reduced by the 

3 deductions specified in subsection (d). 

4 ‘‘(2) GROSS ACTIVE INCOME.—

5 ‘‘(A) IN GENERAL.—For purposes of para6 graph (1), the term ‘gross active income’ means 

7 gross receipts from—

8 ‘‘(i) the sale or exchange of property 

9 or services in the United States by any 

10 person in connection with a business activ11 ity, and 

12 ‘‘(ii) the export of property or services 

13 from the United States in connection with 

14 a business activity.

15 ‘‘(B) EXCHANGES.—For purposes of this 

16 section, the amount treated as gross receipts 

17 from the exchange of property or services is the 

18 fair market value of the property or services re19 ceived, plus any money received. 

20 ‘‘(C) COORDINATION WITH SPECIAL RULES

21 FOR FINANCIAL SERVICES, ETC.—Except as 

22 provided in subsection (e)—

23 ‘‘(i) the term ‘property’ does not in24 clude money or any financial instrument, 

25 and 
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1 ‘‘(ii) the term ‘services’ does not in2 clude financial services. 

3 ‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF

4 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA5 NIZATIONS.—For purposes of this section, the term 

6 ‘business activity’ does not include any activity of a 

7 governmental entity or of any other organization 

8 which is exempt from tax under this chapter. 

9 ‘‘(d) DEDUCTIONS.—

10 ‘‘(1) IN GENERAL.—The deductions specified in 

11 this subsection are—

12 ‘‘(A) the cost of business inputs for the 

13 business activity, 

14 ‘‘(B) wages (as defined in section 3121(a) 

15 without regard to paragraph (1) thereof) which 

16 are paid in cash for services performed in the 

17 United States as an employee, and 

18 ‘‘(C) retirement contributions to or under 

19 any plan or arrangement which makes retire20 ment distributions (as defined in section 63(c)) 

21 for the benefit of such employees to the extent 

22 such contributions are allowed as a deduction 

23 under section 404. 

24 ‘‘(2) BUSINESS INPUTS.—
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (1), the term ‘cost of business inputs’ 

3 means—

4 ‘‘(i) the amount paid for property sold 

5 or used in connection with a business ac6 tivity, 

7 ‘‘(ii) the amount paid for services 

8 (other than for the services of employees, 

9 including fringe benefits paid by reason of 

10 such services) in connection with a busi11 ness activity, and 

12 ‘‘(iii) any excise tax, sales tax, cus13 toms duty, or other separately stated levy 

14 imposed by a Federal, State, or local gov15 ernment on the purchase of property or 

16 services which are for use in connection 

17 with a business activity. 

18 Such term shall not include any tax imposed by 

19 chapter 2 or 21. 

20 ‘‘(B) EXCEPTIONS.—Such term shall not 

21 include—

22 ‘‘(i) items described in subparagraphs 

23 (B) and (C) of paragraph (1), and 

24 ‘‘(ii) items for personal use not in 

25 connection with any business activity. 
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1 ‘‘(C) EXCHANGES.—For purposes of this 

2 section, the amount treated as paid in connec3 tion with the exchange of property or services 

4 is the fair market value of the property or serv5 ices exchanged, plus any money paid. 

6 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTER7 MEDIATION SERVICE ACTIVITIES.—In the case of the 

8 business activity of providing financial intermediation 

9 services, the taxable income from such activity shall be 

10 equal to the value of the intermediation services provided 

11 in such activity. 

12 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM13 PLOYEE.—For purposes of this section, the term ‘business 

14 activity’ does not include the performance of services by 

15 an employee for the employee’s employer.

16 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX17 CESS DEDUCTIONS.—

18 ‘‘(1) IN GENERAL.—If the aggregate deductions 

19 for any taxable year exceed the gross active income 

20 for such taxable year, the credit-equivalent of such 

21 excess shall be allowed as a credit against the tax 

22 imposed by this section for the following taxable 

23 year. 

24 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC25 TIONS.—For purposes of paragraph (1), the credit-
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1 equivalent of the excess described in paragraph (1) 

2 for any taxable year is an amount equal to—

3 ‘‘(A) the sum of—

4 ‘‘(i) such excess, plus 

5 ‘‘(ii) the product of such excess and 

6 the 3-month Treasury rate for the last 

7 month of such taxable year, multiplied by 

8 ‘‘(B) the rate of the tax imposed by sub9 section (a) for such taxable year. 

10 ‘‘(3) CARRYOVER OF UNUSED CREDIT.—If the 

11 credit allowable for any taxable year by reason of 

12 this subsection exceeds the tax imposed by this sec13 tion for such year, then (in lieu of treating such ex14 cess as an overpayment) the sum of—

15 ‘‘(A) such excess, plus 

16 ‘‘(B) the product of such excess and the 3-

17 month Treasury rate for the last month of such 

18 taxable year, 

19 shall be allowed as a credit against the tax imposed 

20 by this section for the following taxable year. 

21 ‘‘(4) 3-MONTH TREASURY RATE.—For purposes 

22 of this subsection, the 3-month Treasury rate is the 

23 rate determined by the Secretary based on the aver24 age market yield (during any 1-month period se25 lected by the Secretary and ending in the calendar 
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1 month in which the determination is made) on out2 standing marketable obligations of the United States 

3 with remaining periods to maturity of 3 months or 

4 less. 

5 ‘‘SEC. 60C. TAX ON NONCASH COMPENSATION PROVIDED 

6 TO EMPLOYEES NOT ENGAGED IN BUSINESS 

7 ACTIVITY. 

8 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 

9 a tax equal to 19 percent (17 percent in the case of cal10 endar years beginning after December 31, 2004) of the 

11 value of excludable compensation provided during the cal12 endar year by an employer for the benefit of employees 

13 to whom this section applies. 

14 ‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 

15 section shall be paid by the employer. 

16 ‘‘(c) EXCLUDABLE COMPENSATION.—For purposes 

17 of subsection (a), the term ‘excludable compensation’ 

18 means any remuneration for services performed as an em19 ployee other than—

20 ‘‘(1) wages (as defined in section 3121(a) with21 out regard to paragraph (1) thereof) which are paid 

22 in cash, 

23 ‘‘(2) remuneration for services performed out24 side the United States, and 
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1 ‘‘(3) retirement contributions to or under any 

2 plan or arrangement which makes retirement dis3 tributions (as defined in section 63(c)). 

4 ‘‘(d) EMPLOYEES TO WHOM SECTION APPLIES.—

5 This section shall apply to an employee who is employed 

6 in any activity by—

7 ‘‘(1) any organization which is exempt from 

8 taxation under this chapter, or 

9 ‘‘(2) any agency or instrumentality of the 

10 United States, any State or political subdivision of 

11 a State, or the District of Columbia.’’

12 (b) CLERICAL AMENDMENT.—The table of parts for 

13 subchapter A of chapter 1 of such Code is amended by 

14 adding at the end the following new item:

‘‘PART VIII. FREEDOM FLAT TAX.’’.

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this title shall apply to taxable years beginning after De17 cember 31, 2003.

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