I 

112TH 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 

MARCH 11, 2011 

Mr. BURGESS (for himself, Mr. BARTLETT, Mr. COLE, and Mr. ROSS of Florida) 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 ‘‘Freedom Flat Tax 

5 Act’’. 


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1 SEC. 2. FREEDOM FLAT TAX. 

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

3 Internal Revenue Code of 1986 is amended by inserting 

4 after part VII the following new 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 (relating to tax imposed) and 55 (relating to alter12 native minimum tax imposed), under regulations 

13 prescribed by the Secretary, an individual may make 

14 an irrevocable election to be subject to the tax im15 posed by this part. 

16 ‘‘(2) INNOCENT SPOUSE EXCEPTION.—An indi17 vidual who has made an election under paragraph 

18 (1) and who subsequently obtains relief of liability 

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

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

21 election made under paragraph (1). 

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

23 lieu of the tax imposed by sections 11 (relating to tax imVerDate Mar 15 2010 03:10 Mar 12, 2011 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1040.IH H1040

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1 posed) and 55 (relating to alternative minimum tax im2 posed), under regulations prescribed by the Secretary, a 

3 person engaged in business activity may make an irrev4 ocable election to be subject to the tax imposed by this 

5 part. 

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

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

8 person with respect to whom an election under subsection 

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

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

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

12 taxable income of every individual who makes an election 

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

14 ‘‘(1) 19 percent of the taxable income of such 

15 individual for such taxable year in the case of the 

16 first 2 taxable years of the individual beginning with 

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

18 ‘‘(2) 17 percent of the taxable income of such 

19 individual for such taxable year in the case of all 

20 taxable years subsequent to the taxable years de21 scribed in paragraph (1). 

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

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

24 ‘‘(1) the sum of— 


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

2 without regard to paragraph (1) thereof) which 

3 are paid in cash and which are received during 

4 the taxable year for services performed in the 

5 United States, 

6 ‘‘(B) retirement distributions which are in7 cludible in gross income for such taxable year, 

8 plus 

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

10 the United States or of any State which is in 

11 the nature of unemployment compensation, over 

12 ‘‘(2) the standard deduction. 

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

14 part— 

15 ‘‘(1) IN GENERAL.—The term ‘standard deduc16 tion’ means the sum of— 

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

18 ‘‘(B) the additional standard deduction. 

19 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur20 poses of paragraph (1), the basic standard deduction 

21 is— 

22 ‘‘(A) $30,320 in the case of— 

23 ‘‘(i) a joint return, or 

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

25 section 2(a)), 


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1 ‘‘(B) $19,350 in the case of a head of 

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

3 ‘‘(C) $15,160 in the case of an indi4 vidual— 

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

6 not a surviving spouse or head of house7 hold, or 

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

9 a separate return. 

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

11 purposes of paragraph (1), the additional standard 

12 deduction is $6,530 for each dependent (as defined 

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

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

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

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

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

18 any distribution from— 

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

20 includes a trust exempt from tax under section 

21 501(a), 

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

23 403(a), 

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

25 403(b), 


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1 ‘‘(4) an individual retirement account described 

2 in section 408(a), 

3 ‘‘(5) an individual retirement annuity described 

4 in section 408(b), 

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

6 defined in section 457), 

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

8 414(d)), or 

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

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

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

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

13 or trust. 

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

15 of this part— 

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

17 the taxable income of each dependent child of such 

18 individual who has not attained age 14 as of the 

19 close of such taxable year, and 

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

21 for tax imposed by this section with respect to such 

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

23 such taxable year. 

24 ‘‘(f) INFLATION ADJUSTMENT.— 


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

2 year beginning in a calendar year after 2011, each 

3 dollar amount contained in subsection (c) shall be 

4 increased by an amount determined by the Secretary 

5 to be equal to— 

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

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

8 calendar year. 

9 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur10 poses of paragraph (1), the cost-of-living adjustment 

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

12 which— 

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

14 year, exceeds 

15 ‘‘(B) the CPI for the calendar year 2010. 

16 ‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur17 poses of paragraph (2), the CPI for any calendar 

18 year is the average of the Consumer Price Index as 

19 of the close of the 12-month period ending on Au20 gust 31 of such calendar year. 

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

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

23 means the last Consumer Price Index for all-urban 

24 consumers published by the Department of Labor. 

25 For purposes of the preceding sentence, the revision 


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1 of the Consumer Price Index which is most con2 sistent with the Consumer Price Index for calendar 

3 year 1986 shall be used. 

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

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

6 increase shall be rounded to the next highest mul7 tiple of $10. 

8 ‘‘(g) MARITAL STATUS.—For purposes of this sec9 tion, marital status shall be determined under section 

10 7703. 

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

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

13 every person engaged in a business activity who makes an 

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

15 ‘‘(1) 19 percent of the business taxable income 

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

17 the first 2 taxable years of the person beginning 

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

19 and 

20 ‘‘(2) 17 percent of the business taxable income 

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

22 all taxable years subsequent to the taxable years de23 scribed in paragraph (1). 

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

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


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

2 corporation, or otherwise. 

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

4 this section— 

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

6 income’ means gross active income reduced by the 

7 deductions specified in subsection (d). 

8 ‘‘(2) GROSS ACTIVE INCOME.— 

9 ‘‘(A) IN GENERAL.—For purposes of para10 graph (1), the term ‘gross active income’ means 

11 gross receipts from— 

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

13 or services in the United States by any 

14 person in connection with a business activ15 ity, and 

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

17 from the United States in connection with 

18 a business activity. 

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

20 section, the amount treated as gross receipts 

21 from the exchange of property or services is the 

22 fair market value of the property or services re23 ceived, plus any money received. 


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1 ‘‘(C) COORDINATION WITH SPECIAL RULES

2 FOR FINANCIAL SERVICES, ETC.—Except as 

3 provided in subsection (e)— 

4 ‘‘(i) the term ‘property’ does not in5 clude money or any financial instrument, 

6 and 

7 ‘‘(ii) the term ‘services’ does not in8 clude financial services. 

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

10 GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA11 NIZATIONS.—For purposes of this section, the term 

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

13 governmental entity or of any other organization 

14 which is exempt from tax under this chapter. 

15 ‘‘(d) DEDUCTIONS.— 

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

17 this subsection are— 

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

19 business activity, 

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

21 without regard to paragraph (1) thereof) which 

22 are paid in cash for services performed in the 

23 United States as an employee, and 

24 ‘‘(C) retirement contributions to or under 

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1 ment distributions (as defined in section 

2 60A(d)) for the benefit of such employees to the 

3 extent such contributions are allowed as a de4 duction under section 404. 

5 ‘‘(2) BUSINESS INPUTS.— 

6 ‘‘(A) IN GENERAL.—For purposes of para7 graph (1), the term ‘cost of business inputs’ 

8 means— 

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

10 or used in connection with a business ac11 tivity, 

12 ‘‘(ii) the amount paid for services 

13 (other than for the services of employees, 

14 including fringe benefits paid by reason of 

15 such services) in connection with a busi16 ness activity, and 

17 ‘‘(iii) any excise tax, sales tax, cus18 toms duty, or other separately stated levy 

19 imposed by a Federal, State, or local gov20 ernment on the purchase of property or 

21 services which are for use in connection 

22 with a business activity. 

23 Such term shall not include any tax imposed by 

24 chapter 2 or 21. 


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

2 include— 

3 ‘‘(i) items described in subparagraphs 

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

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

6 connection with any business activity. 

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

8 section, the amount treated as paid in connec9 tion with the exchange of property or services 

10 is the fair market value of the property or serv11 ices exchanged, plus any money paid. 

12 ‘‘(e) SPECIAL RULES FOR FINANCIAL INTERMEDI13 ATION SERVICE ACTIVITIES.—In the case of the business 

14 activity of providing financial intermediation services, the 

15 taxable income from such activity shall be equal to the 

16 value of the intermediation services provided in such activ17 ity. 

18 ‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM19 PLOYEE.—For purposes of this section, the term ‘business 

20 activity’ does not include the performance of services by 

21 an employee for the employee’s employer. 

22 ‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX23 CESS DEDUCTIONS.— 

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

25 for any taxable year exceed the gross active income 


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

2 excess shall be allowed as a credit against the tax 

3 imposed by this section for the following taxable 

4 year. 

5 ‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC6 TIONS.—For purposes of paragraph (1), the credit7 equivalent of the excess described in paragraph (1) 

8 for any taxable year is an amount equal to— 

9 ‘‘(A) the sum of— 

10 ‘‘(i) such excess, plus 

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

12 the 3-month Treasury rate for the last 

13 month of such taxable year, multiplied by 

14 ‘‘(B) the rate of the tax imposed by sub15 section (a) for such taxable year. 

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

17 credit allowable for any taxable year by reason of 

18 this subsection exceeds the tax imposed by this sec19 tion for such year, then (in lieu of treating such ex20 cess as an overpayment) the sum of— 

21 ‘‘(A) such excess, plus 

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

23 month Treasury rate for the last month of such 

24 taxable year, 


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1 shall be allowed as a credit against the tax imposed 

2 by this section for the following taxable year. 

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

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

5 rate determined by the Secretary based on the aver6 age market yield (during any 1-month period se7 lected by the Secretary and ending in the calendar 

8 month in which the determination is made) on out9 standing marketable obligations of the United States 

10 with remaining periods to maturity of 3 months or 

11 less. 

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

13 TO EMPLOYEES NOT ENGAGED IN BUSINESS 

14 ACTIVITY. 

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

16 on every employer of an employee to whom this section 

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

18 part a tax equal to— 

19 ‘‘(1) 19 percent of the value of excludable com20 pensation provided during the calendar year by the 

21 employer for the benefit of employees to whom this 

22 section applies in the case of the first 2 calendar 

23 years beginning with the calendar year for which the 

24 election under section 60 is made, and 


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1 ‘‘(2) 17 percent of such excludable compensa2 tion during the calendar year in the case of all cal3 endar years subsequent to the calendar years de4 scribed in paragraph (1). 

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

6 section shall be paid by the employer. 

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

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

9 means any remuneration for services performed as an em10 ployee other than— 

11 ‘‘(1) wages (as defined in section 3121(a) with12 out regard to paragraph (1) thereof) which are paid 

13 in cash, 

14 ‘‘(2) remuneration for services performed out15 side the United States, and 

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

17 plan or arrangement which makes retirement dis18 tributions (as defined in section 60A(d)). 

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

20 This section shall apply to an employee who is employed 

21 in any activity by— 

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

23 taxation under this chapter, or 


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

2 United States, any State or political subdivision of 

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

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

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

6 adding at the end the following new item: 

‘‘PART VIII. FREEDOM FLAT TAX.’’. 

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

8 this title shall apply to taxable years beginning after De9 cember 31, 2011. 

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

11 (a) IN GENERAL.—Subtitle B of the Internal Rev12 enue Code of 1986 is hereby repealed. 

13 (b) EFFECTIVE DATE.—The repeal made by sub14 section (a) shall apply to the estates of decedents dying, 

15 and gifts and generation-skipping transfers made, after 

16 December 31, 2011. 

17 (c) CROSS REFERENCE.—See section 102 of the In18 ternal Revenue Code of 1986 for exclusion of gifts and 

19 inheritances from gross income. 

20 SEC. 4. SUPERMAJORITY REQUIRED TO CONSIDER REV21 ENUE MEASURE. 

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

23 resolution, or conference report that— 


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

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

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

4 (2) reduces the standard deduction, as defined 

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

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

7 Code (as so amended), 

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

9 House of Representatives or the Senate unless so deter10 mined by a vote of not less than two-thirds of the Members 

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

12 may be) voting, a quorum being present. 

Æ 


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