REPLACING THE FEDERAL INCOME TAX HEARINGS COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION JUNE 6, 7, AND 8, 1995 Serial 104-28 Printed for the use of the Committee on Ways and Means oe U.S. GOVERNMENT PRINTING OFFICE 21-816 Cc WASHINGTON : 1996, For sale by the U.S. Government Printing Office Superimendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-052327-3COMMITTEE ON WAYS AND MEANS 5 BILL ARCHER, Texas, Chairman PHILIP M. CRANE, Mlinois SAM M. GIBBONS, Florida BILL THOMAS, California CHARLES B. RANGEL, New York E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR., Indi JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee AMO HOUGHTON, New York ROBERT T. MATSUI, California WALLY HERGER, California BARBARA B. KENNELLY, Connecticut JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland JIM RAMSTAD, Minnesota JIM MCDERMOTT, Washington DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin JIM NUSSLE, iowa JOHN LEWIS, Georgia SAM JOHNSON, Texas LF. PAYNE, Virginia JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts MAC COLLINS, Georgia ROB PORTMAN, Ohio PHILIP 8. ENGLISH, Pennsylvania JOHN ENSIGN, Nevada JON CHRISTENSEN, Nebraska Puntip D. MoseLEY, Chief of StafT JANICE MAYS, Minority Chief Counsel ayCONTENTS Advisory of May 11, 1995, announcing the hearings WITNESSES U.S, General Accounting Office, Jennic S. Stathis, Director, Tax Policy and ‘Administration Issues, General Government, Division US. Department of the Treasury, Hon. Lestic B. Samuels, Assistant Sec- retary for Tax Policy, accompanied by Eric Toder, Deputy Assistant Sec- retary . Adams, Charles, Williamsville, N.Y ...... ‘American Business Conference, Barry K. Rogstad ‘American Council for Capital Formation, Charls E, Walker Anmey, Hon. Richard K., Majority Leader, and a Representative in Congress from the State of Texas Beard, Sharon R., Hurricane Fence Co., and Na ference on Small Business Bionomics Institute, Michael Rothschild Boskin, Hon. Michael J., Stanford Univer: Bradford, David F., Princeton Universit Business Leadership Council, Richard Cato Institute, Stephen Moore Christian, Ernest Citizens for an Alter y Gnossen, Sipren, Erasmus University, "Rotterdam, The Ne ‘ox, Hon. Christopher, a Representative in Congress from the Stat cihens Hon. Hall, Arthur P., II, "Tax Foundation Hall, Robert EB. Stanford University Hayes, Steven L., Citizens for an Alternative Tax System Hudson Institute, Alan Reynolds . Hufbauer, Gary C., Institute for International Hurricane Fence Co, Sharon R. Beard Institute for International Economics, Gary. Ba Institute for Political Economy, Hon. ‘Paul C Craig Roberts Jorgenson, Dale W., Harvard University . Kemp, Hon. Jack, Economic Growth and Tax Kotlikoff; Laurence J, Boston University... Lugar, Hon. Richard G., ‘a U.S. Senator from Massa, Cliff, Ul, Patton Be LLP .. Mobile Corp., William G. Dakin .. Moore, Stephen, Cato Institute National nice House Conference on Smal Nunn, Hon. Sam, a U.S. Senator from the State of Georgia .. Payne, James L., Sandpoint, Idaho ... Penner, Rudolph G., KPMG Peat Marwich an 109 183Iv Page Raboy, David G., Patton Boggs, [.L.P 188 Rahn, Richard W., Business Leadership Council 621 Reynolds, Alan, Hudson Institute 605 Roberts, Hon. Paul Craig, Institute for Political Beonomy 640 ti jarry K., American Business Conference 443 Rothschild, Michael, Bionomics Institute Schaefer, Hon, Dan, a Representative in Congress from the State of Colorado 579 Schenk, Alan, Wayne State University Law School, Detroit, Mich 316 Skidmore, Constance E., Coopers & Lybrand, L.L.P 24 Small Business Survival Committee, Ray Tyler .. a 20 Souder, Hon. Mark E., a Representative in Congress from the State of Indi ana .. 540 Specter, Hon. Arien, a U.S. Senator from the State of Pennsyivania » ey 76 Tauzin, Hon. W.J. (Billy), a Representative in Congress from the State of Louisiana - 570 Tax Foundation, Arthur P. Hail It . 159 Telect Co., Wayne E. Williams 38 Tyler, Ray, Tyler Business Services, Inc., and Small Business Survival Com- mittee ... 20 Walker, Charla E., American Council for Gapital Formation 97 Weidenbaum, Hon. Murray, Washington University, St. Lot 433 Williams, Wayne E., Telect Co 38 SUBMISSIONS FOR THE RECORD Acedo, E.C., and family, San Diego, Culif,, letter 676 ‘Adamezyk, Raymond C., West Allis, Wis., letter... 677 ‘American Academy of Family Physicians, statement. 678 ‘American Constitutional Research Service, John William Kurowski, state. ment He He 687 American Farm Bureau Federation, statement » 693, American Iron and Steel Institute, statement 697 Americans for Tax Reform, James P. Lucier, Jr., letter 704 ‘Americans for the National Dividend Act, John H. Perry, dr., statement 705 Anderson, James L., Union, Wash., letter...» n3 Apolinsky, Harold I., Small Business Council of America, statement and attachments ... 972 Ashworth, Robert H., Woodinville, Wash., letter 74 ‘Auto Source, Rick Jabour, letter... 75 Badler, Lynn, and Ted Warren, El Cajon, Calif,, joint letter . 716 Ball, Michael, Modesto, Calif., letter .... nT Beamon, Phyllis D., Louisville, Ky., letter .. 720 Bean, Joan R,, Fairfield Glade, Ten, letter 722 Belt, Bradley 'D., Center for Strategic and International Studies, statement and attachment. ....... : ene as ieee TAT Belt, Donald A., Hollister, Calif., letter... 723 Berliner, Leni S., Washington, D.C., letter and attachment .. . 724 Bourque, Daniel P., VHA Inc., statement .. 1044 Brunner, Michacl E., National Telephone Cooperative Association, statement . 915 BuilderSource, Kathy Jabour, letter 743, Cameron, Scott, Toledo, Wash., letter 744 Capps, R: Randall, Electronic Data Systems Corp, suaement. 79 Cart dohn, Los Angeles, Calif, letter 745 Carter, A.C., Mission, Kans., letter 746 Center for Strategic and International Studies, Bradiey D, Belt, statement and attachment... 747 757 758 ‘760 761 762 163 757 765 ‘768 710 771 714 Center for the Study of Economics, Steven B. Cord, statement Chambers, Harold L., Rio Rancho, N. Mex,, letter ..... Charles, Richard, Burlingame, Calif,, letter Chopelas, Peter, Arlington, Wash., letter... Citizens for Sound Tax Reform, Tim Ruel, letter : Coalition for a 1% Tax, Clarence P. Keating, Jr., letter and attachment Cord, Steven B., Center for the Study of Economics, statement Corke, Bob, Sacramento, Calif., letter and attachment Cotton, Hazel, Texarkana, Tex., letter : Denney, B., El Paso, Tex., letter Distilled Spirits Council of the United States, Ini Duncan, Sheridan B., los Angeles, Calif., letter ‘statement ..Edison Electric Institute, statement... Blecironie Data Systems Corp. R: Randall Capps, staiement Engaging Media, Kirk Mahoney, letter Foreman, Richard C., Lakeside, Calif, lette Friedrich, Steven R., Placerville, Calif., letter Garrison, Johana Moon, Baywood Park, Calif,, letter Goldsby, Michael E., Livermore, Calif, letter Gutting, Sidney J., Louisville, Ky., letter Harper, Sandy, San Rafacl, Calif, letter .. Harper, Sherry, San Rafael, Calif., letter Haxby, Suzan, Anaheim, Calif, letter .. Helming Consulting Services, Inc., Bill Heiming, Olathe, Kans., letter and attac nt Henderson, Paula B., Seattic, Wash., letter Henry, Carol, Gig Harbor, Wash letter Hibbard, Robert 't., Anaheim, Calif, letter and attachments Hill, Calvin A., New York, N.Y., letter and attachment .. Hinthorn, Wayne L., Half Moon Bay, Calif,, letter Holmes, William T., Escondido, Calif, letter Hopkins, Fortescue W., Patrick Henry PAC (VA), statement Independent Sector, Sara E. Meléndez, statement and attachment Jabour, Kathy: BuilderSource, letter . on her own behalf, letter Jabour, Rick, Auto Source, letter Johnson, H., Waianae, Hawaii, letter Johnson, Roger L., Chula Vista, Calif, letter Jones, Jack R., Riverdale, Md., letter Keating, Clarence P., Jr., Coalition for @ 1% ‘Tax, letter and attachment Kerwood, Craig R., Port Orchard, Wash., letter Kons, Ronald Petaluma, Calif, letter Kurowski, John William, American Consti tional Research Service, state- Laird, J is ” LaRouche, G.J., Fraser, Mich., letter and Lucier, James ?,, Jr., Americans for Tax Reform, lette! Mahoney, K ing Media, letter Marsh, Phillip, San Francisco, Calif,, let Mayne, Frank A., El Paso, Tex., letter and al MB Associates, Inc., William S. Mitchell, letter... McCorkell, Scott J. Seattle, Wash., letter McGuire, Shawn, State Farm Insurance, , Wash., letter McLeod, William Earl, United States ‘of America Zero Nation: National Economic Stimulus Foundation, letter and attachments Medlin, Adele, Greeneville, S.C., letter .. Meléndez, Sara E., Independent Sector, Melker, Clino, Baton Rouge, La., letter Mitchell, William S,, MB Associates, Inc., Morris, James C., Cincinnati, Ohio, letter and at Morrissey, Robert, Vista, Calif, Ieticr .. National ‘Telephone Cooperative Association, Naufeld, James A., Petaluma, Calif, letter .. Niles, Nancy L., Seattle, Wash., letter .. O'Brien, Patricia A., Prosser, Wash., lettcr « Oliver, William W.,' Bloomington, Ind., letter and attachment Palm, George A., Ludington, Mich., letter Panoff, Robert E., Miami, Fia., statement Patil, Balaji V., Sarver, Ba., letter and attachment Patrick Henry PAC (VA), Fortescue W. Hopkins, statement... Perry, John H., Jr., Americans for the National Dividend Act, Phaneuf, Karolyn A., Bloomficld Hills, Mich., letter Pilla, Daniel J., St. Paul, Minn., statement Portner, Gloria M., San Clemente, Calif, letter Post, Michael, Cypress, Calif, lette : Powell, Peter W., Sebring, Fla. letter Ratkus, Carl F., State Farm Insurance, Roy: . Rhodes, James A., Folsom, Calif, letter and attachment Roulston, Gary L., Baton Rouge, La,, letter Page 776 779 780 781 182 183, 184 785 187 188 789 790 812 815 816 825 828 831 935 833 143 850 15 851 852 853 163 854 855 687 856 857 704 780 879 880 894 895 987 1029 896 833 897 894 898 914 915 917 918 919 920 929 930 933 935 705 939 943 947 948 949 986 950 953VI Page Ruel, Tim, Citizens for Sound Tax Reform, letter .. 762 Sachs, David, New York, N.Y,, letter and attachment 954 Sanders, Linda, et al., Littleton, Colo., joint letter 963 Sanford, Alvin K,, Clinton Twp., Mich., letter 967 Santos, Nasario, Tucson, Ariz., letter + 968 Shearer, Gordon R., Littleton, Colo., letter . 971 Small Business Council of America, Harold I. Apolinsky, statement and attachments . 912 Spenst, John, Garden Grove, Cali! . 978 Spracklen, Myrtle L., and Howard P., Castro Valley joint letter .. a Stark, Hon. Fortney Pete, a Representative in Congress from the State of California, statement. . 980 Starkman, Jay, Atlanta, Ga., letter and attachment .. 983 State Farm Insurance: Shawn McGuire, Spokane, Wash 987 Carl F. Ratkus, Royal Oak, Mich 986 Stone, William R,, Jr., letter and attachment. . 988 Summer, Richard L., Garland, Tex., letter and attachment 998 Taramasso, Joan, Napa, Calif., letter 1000 Thompson, Sam, III, EY’ Paso, Tex., lett 1001 Tieman, Gail E.. and Roger K., Livermore, Calif, joint let United States of America Zero National Debt and National lus Foundation, William Earl McLeod, letter and attachments VHA Inc., Daniel P. Bourque, statement Ward, Michael, West Bend, Wis,, letter . Warren, Ted, and Lynn Badler, £1 Caj Wilson, Ron, Los Osos, Calif., letter Wimer, Jeff, Fort Klar Wren Services, statementREPLACING THE FEDERAL INCOME TAX TUESDAY, JUNE 6, 1995 House OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D.C. The Committee met, pursuant to call, at 10 a.m., in room 1100, Longworth House Office Building, Hon. Bill Archer (Chairman of the ‘ommittee) presiding. [The advisory announcing the hearings follow:) @MADVISORY FROM THE COMMITTEE ON WAYS AND MEANS FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721 May 11, 1995 . FC-7 Archer Announces Hearing on_ Replacing the Federal Income Tax Congressman Bill Archer (R-TX), Chairman of the Committee on Ways and Means, today announced that the Committee will bold three days of bearings on replacing the Federel income tax. The hearings will take place on Tuesday, June 6, Wednesday, June 7, and Thursday, June 8, 1995, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m. each day. The Committee will receive testimony from invited witnesses. BACKGROUND: ~~ The first, Federal income tax was enacted as part of the Revenue Act of 1862 to finance the Civil War. However, the modem income tax was enacted as part of the Revenue ‘Act of 1913, following the ratification of the 16th Amendment. The income tax had a maximum rate of 7% (for taxable incomes over $500,000). Since 1913, the Federal income tax has steadily expanded, as has public dissatisfaction with it. Major revisions to the Internal Revenue Code occurred in 1938, 1954, and 1986, but significant revisions occur on nearly an annual basis, and minor amendments to the Intemal Code are generally made several times a year. This torrent of tax legislation has been followed by a flood of tax regulations, tax forms, and tax litigation. The cost of complying with the Federal income tax has grown with the complexity of the tax. The cost of complying with Federal taxes is generally considered to be well in excess of $100 billion annually. ‘This compliance burden is particularly brutal for small businesses. Frustration with the current Federal tax system is widespread. The current Federal income. estate, and gift taxes treat savings and investment too harshly. Many aspects of the current tax code place American workers and businesses at a competitive disadvantage. All the various rules in the tax code have not stopped widespread tax avoidance by the underground economy. In announcing the hearings, Chairman Archer stated, "I am committed to tearing the income tax out by its roots. If we don’t tear it out by the roots, I am afraid it will grow back just as tangled as it is now. Therefore, I intend to have the Committee on Ways and Means carefully examine alternative tax systems that would replace completely the current income, este, and gift tax system. However, alternative tax systems must not be measured simply against the current tax system. That's too easy. Instead, all of the proposed tax systems considered by the Committee should be measured against four goals: (1) Is it easy to comply with and does it reduce the role of the Federal Government in our lives; (2) Does it encourage greater savings and investment; (3) Does it improve the international competitiveness of American workers and businesses; and (4) Does it pick up revenue from the underground economy and others who currently do not comply with the tax laws? I believe that a troad- based tax on consumption best meets these goals, and every proponent of a new tax system should be prepared to explain how that tax system meets these four goals."This hearing will review the problems with the current Federal income, estate, and gift taxes and examine various alternative tax systems, including consumption taxes, a flat tax, and the Unlimited Savings Account tax proposal. DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: ‘Any person or organization wishing to submit a written statement for the printed record of the bearing should submit at least six (6) copies of their statement, with their address and date of hearing noted, by the close of business, Thursday, Jume 22, 1995, to Phillip D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing witten statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Committee office, room 1102 Longworth House Office Building, at least two hours before the hearing begins. 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