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 Flor-
ida) 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 com-
mittee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
taxpayers a flat tax alternative to the current income 
tax system. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Freedom Flat Tax 
Act’’. 
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SEC. 2. FREEDOM FLAT TAX. 
(a) IN GENERAL.—Subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting 
after part VII the following new part: 
‘‘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. 
‘‘SEC. 60. IRREVOCABLE ELECTION TO BE SUBJECT TO 
FLAT TAX. 
‘‘(a) INDIVIDUAL.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), in lieu of the tax imposed by sections 1 
(relating to tax imposed) and 55 (relating to alter-
native minimum tax imposed), under regulations 
prescribed by the Secretary, an individual may make 
an irrevocable election to be subject to the tax im-
posed by this part. 
‘‘(2) INNOCENT SPOUSE EXCEPTION.—An indi-
vidual who has made an election under paragraph 
(1) and who subsequently obtains relief of liability 
for tax under section 6015(b) may, not later than 1 
year after the date such relief is granted, revoke the 
election made under paragraph (1). 
‘‘(b) PERSON ENGAGED IN BUSINESS ACTIVITY.—In 
lieu of the tax imposed by sections 11 (relating to tax im-
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posed) and 55 (relating to alternative minimum tax im-
posed), under regulations prescribed by the Secretary, a 
person engaged in business activity may make an irrev-
ocable election to be subject to the tax imposed by this 
part. 
‘‘(c) DISALLOWANCE OF CREDITS.—No credit shall 
be allowed under this chapter for any taxable year to any 
person with respect to whom an election under subsection 
(a) or (b) is in effect. 
‘‘SEC. 60A. TAX IMPOSED ON INDIVIDUALS. 
‘‘(a) IN GENERAL.—There is hereby imposed on the 
taxable income of every individual who makes an election 
to be subject to this part a tax equal to— 
‘‘(1) 19 percent of the taxable income of such 
individual for such taxable year in the case of the 
first 2 taxable years of the individual beginning with 
the taxable year for which the election is made, and 
‘‘(2) 17 percent of the taxable income of such 
individual for such taxable year in the case of all 
taxable years subsequent to the taxable years de-
scribed in paragraph (1). 
‘‘(b) TAXABLE INCOME.—For purposes of this part, 
the term ‘taxable income’ means the excess of— 
‘‘(1) the sum of— 
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‘‘(A) wages (as defined in section 3121(a) 
without regard to paragraph (1) thereof) which 
are paid in cash and which are received during 
the taxable year for services performed in the 
United States, 
‘‘(B) retirement distributions which are in-
cludible in gross income for such taxable year, 
plus 
‘‘(C) amounts received under any law of 
the United States or of any State which is in 
the nature of unemployment compensation, over 
‘‘(2) the standard deduction. 
‘‘(c) STANDARD DEDUCTION.—For purposes of this 
part— 
‘‘(1) IN GENERAL.—The term ‘standard deduc-
tion’ means the sum of— 
‘‘(A) the basic standard deduction, plus 
‘‘(B) the additional standard deduction. 
‘‘(2) BASIC STANDARD DEDUCTION.—For pur-
poses of paragraph (1), the basic standard deduction 
is— 
‘‘(A) $30,320 in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), 
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‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning in a calendar year after 2011, each 
dollar amount contained in subsection (c) shall be 
increased by an amount determined by the Secretary 
to be equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment for such 
calendar year. 
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment 
for any calendar year is the percentage (if any) by 
which— 
‘‘(A) the CPI for the preceding calendar 
year, exceeds 
‘‘(B) the CPI for the calendar year 2010. 
‘‘(3) CPI FOR ANY CALENDAR YEAR.—For pur-
poses of paragraph (2), the CPI for any calendar 
year is the average of the Consumer Price Index as 
of the close of the 12-month period ending on Au-
gust 31 of such calendar year. 
‘‘(4) CONSUMER PRICE INDEX.—For purposes 
of paragraph (3), the term ‘Consumer Price Index’ 
means the last Consumer Price Index for all-urban 
consumers published by the Department of Labor. 
For purposes of the preceding sentence, the revision 
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of the Consumer Price Index which is most con-
sistent with the Consumer Price Index for calendar 
year 1986 shall be used. 
‘‘(5) ROUNDING.—If any increase determined 
under paragraph (1) is not a multiple of $10, such 
increase shall be rounded to the next highest mul-
tiple of $10. 
‘‘(g) MARITAL STATUS.—For purposes of this sec-
tion, marital status shall be determined under section 
7703. 
‘‘SEC. 60B. TAX IMPOSED ON BUSINESS ACTIVITIES. 
‘‘(a) TAX IMPOSED.—There is hereby imposed on 
every person engaged in a business activity who makes an 
election to be taxed under this part a tax equal to— 
‘‘(1) 19 percent of the business taxable income 
of such person for such taxable year in the case of 
the first 2 taxable years of the person beginning 
with the taxable year for which the election is made, 
and 
‘‘(2) 17 percent of the business taxable income 
of such person for such taxable year in the case of 
all taxable years subsequent to the taxable years de-
scribed in paragraph (1). 
‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 
section shall be paid by the person engaged in the business 
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activity, whether such person is an individual, partnership, 
corporation, or otherwise. 
‘‘(c) BUSINESS TAXABLE INCOME.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘business taxable 
income’ means gross active income reduced by the 
deductions specified in subsection (d). 
‘‘(2) GROSS ACTIVE INCOME.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘gross active income’ means 
gross receipts from— 
‘‘(i) the sale or exchange of property 
or services in the United States by any 
person in connection with a business activ-
ity, and 
‘‘(ii) the export of property or services 
from the United States in connection with 
a business activity. 
‘‘(B) EXCHANGES.—For purposes of this 
section, the amount treated as gross receipts 
from the exchange of property or services is the 
fair market value of the property or services re-
ceived, plus any money received. 
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‘‘(C) COORDINATION WITH SPECIAL RULES 
FOR
FINANCIAL
SERVICES, ETC.—Except as 
provided in subsection (e)— 
‘‘(i) the term ‘property’ does not in-
clude money or any financial instrument, 
and 
‘‘(ii) the term ‘services’ does not in-
clude financial services. 
‘‘(3) EXEMPTION FROM TAX FOR ACTIVITIES OF 
GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGA-
NIZATIONS.—For purposes of this section, the term 
‘business activity’ does not include any activity of a 
governmental entity or of any other organization 
which is exempt from tax under this chapter. 
‘‘(d) DEDUCTIONS.— 
‘‘(1) IN GENERAL.—The deductions specified in 
this subsection are— 
‘‘(A) the cost of business inputs for the 
business activity, 
‘‘(B) wages (as defined in section 3121(a) 
without regard to paragraph (1) thereof) which 
are paid in cash for services performed in the 
United States as an employee, and 
‘‘(C) retirement contributions to or under 
any plan or arrangement which makes retire-
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ment distributions (as defined in section 
60A(d)) for the benefit of such employees to the 
extent such contributions are allowed as a de-
duction under section 404. 
‘‘(2) BUSINESS INPUTS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘cost of business inputs’ 
means— 
‘‘(i) the amount paid for property sold 
or used in connection with a business ac-
tivity, 
‘‘(ii) the amount paid for services 
(other than for the services of employees, 
including fringe benefits paid by reason of 
such services) in connection with a busi-
ness activity, and 
‘‘(iii) any excise tax, sales tax, cus-
toms duty, or other separately stated levy 
imposed by a Federal, State, or local gov-
ernment on the purchase of property or 
services which are for use in connection 
with a business activity. 
Such term shall not include any tax imposed by 
chapter 2 or 21. 
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‘‘(B) EXCEPTIONS.—Such term shall not 
include— 
‘‘(i) items described in subparagraphs 
(B) and (C) of paragraph (1), and 
‘‘(ii) items for personal use not in 
connection with any business activity. 
‘‘(C) EXCHANGES.—For purposes of this 
section, the amount treated as paid in connec-
tion with the exchange of property or services 
is the fair market value of the property or serv-
ices exchanged, plus any money paid. 
‘‘(e) SPECIAL RULES FOR FINANCIAL INTERMEDI-
ATION SERVICE ACTIVITIES.—In the case of the business 
activity of providing financial intermediation services, the 
taxable income from such activity shall be equal to the 
value of the intermediation services provided in such activ-
ity. 
‘‘(f) EXCEPTION FOR SERVICES PERFORMED AS EM-
PLOYEE.—For purposes of this section, the term ‘business 
activity’ does not include the performance of services by 
an employee for the employee’s employer. 
‘‘(g) CARRYOVER OF CREDIT-EQUIVALENT OF EX-
CESS DEDUCTIONS.— 
‘‘(1) IN GENERAL.—If the aggregate deductions 
for any taxable year exceed the gross active income 
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for such taxable year, the credit-equivalent of such 
excess shall be allowed as a credit against the tax 
imposed by this section for the following taxable 
year. 
‘‘(2) CREDIT-EQUIVALENT OF EXCESS DEDUC-
TIONS.—For purposes of paragraph (1), the credit- 
equivalent of the excess described in paragraph (1) 
for any taxable year is an amount equal to— 
‘‘(A) the sum of— 
‘‘(i) such excess, plus 
‘‘(ii) the product of such excess and 
the 3-month Treasury rate for the last 
month of such taxable year, multiplied by 
‘‘(B) the rate of the tax imposed by sub-
section (a) for such taxable year. 
‘‘(3) CARRYOVER OF UNUSED CREDIT.—If the 
credit allowable for any taxable year by reason of 
this subsection exceeds the tax imposed by this sec-
tion for such year, then (in lieu of treating such ex-
cess as an overpayment) the sum of— 
‘‘(A) such excess, plus 
‘‘(B) the product of such excess and the 3- 
month Treasury rate for the last month of such 
taxable year, 
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shall be allowed as a credit against the tax imposed 
by this section for the following taxable year. 
‘‘(4) 3-MONTH TREASURY RATE.—For purposes 
of this subsection, the 3-month Treasury rate is the 
rate determined by the Secretary based on the aver-
age market yield (during any 1-month period se-
lected by the Secretary and ending in the calendar 
month in which the determination is made) on out-
standing marketable obligations of the United States 
with remaining periods to maturity of 3 months or 
less. 
‘‘SEC. 60C. TAX ON NONCASH COMPENSATION PROVIDED 
TO EMPLOYEES NOT ENGAGED IN BUSINESS 
ACTIVITY. 
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed 
on every employer of an employee to whom this section 
applies and who makes an election to be taxed under this 
part a tax equal to— 
‘‘(1) 19 percent of the value of excludable com-
pensation provided during the calendar year by the 
employer for the benefit of employees to whom this 
section applies in the case of the first 2 calendar 
years beginning with the calendar year for which the 
election under section 60 is made, and 
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‘‘(2) 17 percent of such excludable compensa-
tion during the calendar year in the case of all cal-
endar years subsequent to the calendar years de-
scribed in paragraph (1). 
‘‘(b) LIABILITY FOR TAX.—The tax imposed by this 
section shall be paid by the employer. 
‘‘(c) EXCLUDABLE COMPENSATION.—For purposes 
of subsection (a), the term ‘excludable compensation’ 
means any remuneration for services performed as an em-
ployee other than— 
‘‘(1) wages (as defined in section 3121(a) with-
out regard to paragraph (1) thereof) which are paid 
in cash, 
‘‘(2) remuneration for services performed out-
side the United States, and 
‘‘(3) retirement contributions to or under any 
plan or arrangement which makes retirement dis-
tributions (as defined in section 60A(d)). 
‘‘(d) EMPLOYEES TO WHOM SECTION APPLIES.— 
This section shall apply to an employee who is employed 
in any activity by— 
‘‘(1) any organization which is exempt from 
taxation under this chapter, or 
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‘‘(2) any agency or instrumentality of the 
United States, any State or political subdivision of 
a State, or the District of Columbia.’’. 
(b) CLERICAL AMENDMENT.—The table of parts for 
subchapter A of chapter 1 of such Code is amended by 
adding at the end the following new item: 
‘‘PART VIII. FREEDOM FLAT TAX.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this title shall apply to taxable years beginning after De-
cember 31, 2011. 
SEC. 3. REPEAL OF ESTATE AND GIFT TAXES. 
(a) IN GENERAL.—Subtitle B of the Internal Rev-
enue Code of 1986 is hereby repealed. 
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to the estates of decedents dying, 
and gifts and generation-skipping transfers made, after 
December 31, 2011. 
(c) CROSS REFERENCE.—See section 102 of the In-
ternal Revenue Code of 1986 for exclusion of gifts and 
inheritances from gross income. 
SEC. 4. SUPERMAJORITY REQUIRED TO CONSIDER REV-
ENUE MEASURE. 
A bill, joint resolution, amendment to a bill or joint 
resolution, or conference report that— 
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(1) includes an increase in the rates of tax 
specified in section 60A(a) or 60B(a) of the Internal 
Revenue Code of 1986 (as amended by this Act), or 
(2) reduces the standard deduction, as defined 
in section 60A(c) of such Code (as so amended), or 
the deductions specified in section 60B(d) of such 
Code (as so amended), 
may not be considered as passed or agreed to by the 
House of Representatives or the Senate unless so deter-
mined by a vote of not less than two-thirds of the Members 
of the House of Representatives or the Senate (as the case 
may be) voting, a quorum being present. 
Æ 
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