I 

115TH CONGRESS 

1ST SESSION H. R. 1040 

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 

FEBRUARY 14, 2017 

Mr. BURGESS (for himself and Mr. FARENTHOLD) introduced the following 

bill; which was referred to the Committee on Ways and Means, and in 

addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL 

To 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 ‘‘Flat Tax Act’’. 

5 SEC. 2. THE FLAT TAX. 

6 (a) IN GENERAL.—Subchapter A of chapter 1 of the 

7 Internal Revenue Code of 1986 is amended by inserting 

8 after part VII the following new part: 


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1 ‘‘PART VIII—THE 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. 

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

3 FLAT TAX. 

4 ‘‘(a) INDIVIDUAL.— 

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), in lieu of the tax imposed by sections 1 

7 (relating to tax imposed) and 55 (relating to alter8 native minimum tax imposed), under regulations 

9 prescribed by the Secretary, an individual may make 

10 an irrevocable election to be subject to the tax im11 posed by this part. 

12 ‘‘(2) INNOCENT SPOUSE EXCEPTION.—An indi13 vidual who has made an election under paragraph 

14 (1) and who subsequently obtains relief of liability 

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

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

17 election made under paragraph (1). 

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

19 lieu of the tax imposed by sections 11 (relating to tax im20 posed) and 55 (relating to alternative minimum tax im21 posed), under regulations prescribed by the Secretary, a 

22 person engaged in business activity may make an irrevVerDate Sep 11 2014 23:51 Feb 21, 2017 Jkt 069200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040

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1 ocable election to be subject to the tax imposed by this 

2 part. 

3 ‘‘(c) DISALLOWANCE OF CREDITS.—No credit shall 

4 be allowed under this chapter for any taxable year to any 

5 person with respect to whom an election under subsection 

6 (a) or (b) is in effect. 

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

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

9 taxable income of every individual who makes an election 

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

11 ‘‘(1) 19 percent of the taxable income of such 

12 individual for such taxable year in the case of the 

13 first 2 taxable years of the individual beginning with 

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

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

16 individual for such taxable year in the case of all 

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

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

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

21 ‘‘(1) the sum of— 

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

23 without regard to paragraph (1) thereof) which 

24 are paid in cash and which are received during 


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1 the taxable year for services performed in the 

2 United States, 

3 ‘‘(B) retirement distributions which are in4 cludible in gross income for such taxable year, 

5 plus 

6 ‘‘(C) amounts received under any law of 

7 the United States or of any State which is in 

8 the nature of unemployment compensation, over 

9 ‘‘(2) the standard deduction. 

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

11 part— 

12 ‘‘(1) IN GENERAL.—The term ‘standard deduc13 tion’ means the sum of— 

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

15 ‘‘(B) the additional standard deduction. 

16 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur17 poses of paragraph (1), the basic standard deduction 

18 is— 

19 ‘‘(A) $32,496 in the case of— 

20 ‘‘(i) a joint return, or 

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

22 section 2(a)), 

23 ‘‘(B) $20,739 in the case of a head of 

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


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1 ‘‘(C) $16,248 in the case of an indi2 vidual— 

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

4 not a surviving spouse or head of house5 hold, or 

6 ‘‘(ii) who is a married individual filing 

7 a separate return. 

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

9 purposes of paragraph (1), the additional standard 

10 deduction is $6,998 for each dependent (as defined 

11 in section 152) who is a qualifying child (as defined 

12 in section 152(c)(1)) for the taxable year and who 

13 is not required to file a return for such taxable year. 

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

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

16 any distribution from— 

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

18 includes a trust exempt from tax under section 

19 501(a), 

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

21 403(a), 

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

23 403(b), 

24 ‘‘(4) an individual retirement account described 

25 in section 408(a), 


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1 ‘‘(5) an individual retirement annuity described 

2 in section 408(b), 

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

4 defined in section 457), 

5 ‘‘(7) a governmental plan (as defined in section 

6 414(d)), or 

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

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

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

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

11 or trust. 

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

13 of this part— 

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

15 the taxable income of each dependent child of such 

16 individual who has not attained age 14 as of the 

17 close of such taxable year, and 

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

19 for tax imposed by this section with respect to such 

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

21 such taxable year. 

22 ‘‘(f) INFLATION ADJUSTMENT.— 

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

24 year beginning in a calendar year after 2018, each 

25 dollar amount contained in subsection (c) shall be 


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1 increased by an amount determined by the Secretary 

2 to be equal to— 

3 ‘‘(A) such dollar amount, multiplied by 

4 ‘‘(B) the cost-of-living adjustment for such 

5 calendar year. 

6 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur7 poses of paragraph (1), the cost-of-living adjustment 

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

9 which— 

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

11 year, exceeds 

12 ‘‘(B) the CPI for the calendar year 2017. 

13 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur14 poses of paragraph (2), the CPI for any calendar 

15 year is the average of the Consumer Price Index as 

16 of the close of the 12-month period ending on Au17 gust 31 of such calendar year. 

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

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

20 means the last Consumer Price Index for all urban 

21 consumers published by the Department of Labor. 

22 For purposes of the preceding sentence, the revision 

23 of the Consumer Price Index which is most con24 sistent with the Consumer Price Index for calendar 

25 year 1986 shall be used. 


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

2 under paragraph (1) is not a multiple of $10, such 

3 increase shall be rounded to the next highest mul4 tiple of $10. 

5 ‘‘(g) MARITAL STATUS.—For purposes of this sec6 tion, marital status shall be determined under section 

7 7703. 

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

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

10 every person engaged in a business activity who makes an 

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

12 ‘‘(1) 19 percent of the business taxable income 

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

14 the first 2 taxable years of the person beginning 

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

16 and 

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

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

19 all taxable years subsequent to the taxable years de20 scribed in paragraph (1). 

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

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

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

24 corporation, or otherwise. 


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

2 this section— 

3 ‘‘(1) IN GENERAL.—The term ‘business taxable 

4 income’ means gross active income reduced by the 

5 deductions specified in subsection (d). 

6 ‘‘(2) GROSS ACTIVE INCOME.— 

7 ‘‘(A) IN GENERAL.—For purposes of para8 graph (1), the term ‘gross active income’ means 

9 gross receipts from— 

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

11 or services in the United States by any 

12 person in connection with a business activ13 ity, and 

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

15 from the United States in connection with 

16 a business activity. 

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

18 section, the amount treated as gross receipts 

19 from the exchange of property or services is the 

20 fair market value of the property or services re21 ceived, plus any money received. 

22 ‘‘(C) COORDINATION WITH SPECIAL RULES

23 FOR FINANCIAL SERVICES, ETC.—Except as 

24 provided in subsection (e)— 


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1 ‘‘(i) the term ‘property’ does not in2 clude money or any financial instrument, 

3 and 

4 ‘‘(ii) the term ‘services’ does not in5 clude financial services. 

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

7 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA8 NIZATIONS.—For purposes of this section, the term 

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

10 governmental entity or of any other organization 

11 which is exempt from tax under this chapter. 

12 ‘‘(d) DEDUCTIONS.— 

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

14 this subsection are— 

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

16 business activity, 

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

18 without regard to paragraph (1) thereof) which 

19 are paid in cash for services performed in the 

20 United States as an employee, and 

21 ‘‘(C) retirement contributions to or under 

22 any plan or arrangement which makes retire23 ment distributions (as defined in section 

24 60A(d)) for the benefit of such employees to the 


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1 extent such contributions are allowed as a de2 duction under section 404. 

3 ‘‘(2) BUSINESS INPUTS.— 

4 ‘‘(A) IN GENERAL.—For purposes of para5 graph (1), the term ‘cost of business inputs’ 

6 means— 

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

8 or used in connection with a business ac9 tivity, 

10 ‘‘(ii) the amount paid for services 

11 (other than for the services of employees, 

12 including fringe benefits paid by reason of 

13 such services) in connection with a busi14 ness activity, and 

15 ‘‘(iii) any excise tax, sales tax, cus16 toms duty, or other separately stated levy 

17 imposed by a Federal, State, or local gov18 ernment on the purchase of property or 

19 services which are for use in connection 

20 with a business activity. 

21 Such term shall not include any tax imposed by 

22 chapter 2 or 21. 

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

24 include— 


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1 ‘‘(i) items described in subparagraphs 

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

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

4 connection with any business activity. 

5 ‘‘(C) EXCHANGES.—For purposes of this 

6 section, the amount treated as paid in connec7 tion with the exchange of property or services 

8 is the fair market value of the property or serv9 ices exchanged, plus any money paid. 

10 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTERMEDI11 ATION SERVICE ACTIVITIES.—In the case of the business 

12 activity of providing financial intermediation services, the 

13 taxable income from such activity shall be equal to the 

14 value of the intermediation services provided in such activ15 ity. 

16 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM17 PLOYEE.—For purposes of this section, the term ‘business 

18 activity’ does not include the performance of services by 

19 an employee for the employee’s employer. 

20 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX21 CESS DEDUCTIONS.— 

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

23 for any taxable year exceed the gross active income 

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

25 excess shall be allowed as a credit against the tax 


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1 imposed by this section for the following taxable 

2 year. 

3 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC4 TIONS.—For purposes of paragraph (1), the credit5 equivalent of the excess described in paragraph (1) 

6 for any taxable year is an amount equal to— 

7 ‘‘(A) the sum of— 

8 ‘‘(i) such excess, plus 

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

10 the 3-month Treasury rate for the last 

11 month of such taxable year, multiplied by 

12 ‘‘(B) the rate of the tax imposed by sub13 section (a) for such taxable year. 

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

15 credit allowable for any taxable year by reason of 

16 this subsection exceeds the tax imposed by this sec17 tion for such year, then (in lieu of treating such ex18 cess as an overpayment) the sum of— 

19 ‘‘(A) such excess, plus 

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

21 month Treasury rate for the last month of such 

22 taxable year, 

23 shall be allowed as a credit against the tax imposed 

24 by this section for the following taxable year. 


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1 ‘‘(4) 3-MONTH TREASURY RATE.—For purposes 

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

3 rate determined by the Secretary based on the aver4 age market yield (during any 1-month period se5 lected by the Secretary and ending in the calendar 

6 month in which the determination is made) on out7 standing marketable obligations of the United States 

8 with remaining periods to maturity of 3 months or 

9 less. 

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

11 TO EMPLOYEES NOT ENGAGED IN BUSINESS 

12 ACTIVITY. 

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

14 on every employer of an employee to whom this section 

15 applies and who makes an election to be taxed under this 

16 part a tax equal to— 

17 ‘‘(1) 19 percent of the value of excludable com18 pensation provided during the calendar year by the 

19 employer for the benefit of employees to whom this 

20 section applies in the case of the first 2 calendar 

21 years beginning with the calendar year for which the 

22 election under section 60 is made, and 

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1 endar years subsequent to the calendar years de2 scribed in paragraph (1). 

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

4 section shall be paid by the employer. 

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

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

7 means any remuneration for services performed as an em8 ployee other than— 

9 ‘‘(1) wages (as defined in section 3121(a) with10 out regard to paragraph (1) thereof) which are paid 

11 in cash, 

12 ‘‘(2) remuneration for services performed out13 side the United States, and 

14 ‘‘(3) retirement contributions to or under any 

15 plan or arrangement which makes retirement dis16 tributions (as defined in section 60A(d)). 

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

18 This section shall apply to an employee who is employed 

19 in any activity by— 

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

21 taxation under this chapter, or 

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

23 United States, any State or political subdivision of 

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


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

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

3 adding at the end the following new item: 

‘‘PART VIII. THE FLAT TAX’’. 

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

5 this section shall apply to taxable years beginning after 

6 December 31, 2017. 

7 SEC. 3. REPEAL OF ESTATE AND GIFT TAXES. 

8 (a) IN GENERAL.—Subtitle B of the Internal Rev9 enue Code of 1986 is hereby repealed. 

10 (b) EFFECTIVE DATE.—The repeal made by sub11 section (a) shall apply to the estates of decedents dying, 

12 and gifts and generation-skipping transfers made, after 

13 December 31, 2017. 

14 (c) CROSS REFERENCE.—See section 102 of the In15 ternal Revenue Code of 1986 for exclusion of gifts and 

16 inheritances from gross income. 

17 SEC. 4. SUPERMAJORITY REQUIRED TO CONSIDER REV18 ENUE MEASURE. 

19 A bill, joint resolution, amendment to a bill or joint 

20 resolution, or conference report that— 

21 (1) includes an increase in the rates of tax 

22 specified in section 60A(a) or 60B(a) of the Internal 

23 Revenue Code of 1986 (as amended by this Act), or 

24 (2) reduces the standard deduction, as defined 

25 in section 60A(c) of such Code (as so amended), or 


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1 the deductions specified in section 60B(d) of such 

2 Code (as so amended), 

3 may not be considered as passed or agreed to by the 

4 House of Representatives or the Senate unless so deter5 mined by a vote of not less than two-thirds of the Members 

6 of the House of Representatives or the Senate (as the case 

7 may be) voting, a quorum being present. 

Æ 


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