Speeches & Floor Statements

Floor Remarks of U.S. Senator Lamar Alexander (R-TN) on an “Optional Flat Tax”

Posted on April 14, 2008

Mr. President, today most Americans are struggling with filling out their tax returns which are due tomorrow. This week I am introducing legislation that will make it possible for an American taxpayer to file his or her tax return on one page, a one-page optional flat tax on individuals and businesses at the rate of 19 percent for the first two years and 17 percent thereafter. Think what a change that would be. Taxpayers spend an average of over 26 hours to complete tax returns; and 13.6 hours just to complete form 1040. Think how different it would be to simply fill out one page and turn that in. In 2005, taxpayers spent 6 billion hours and approximately $265 billion to comply with the Tax Code. Think how much extra leisure time or productive work time we could have if every American had the option of a one-page simplified tax return. Mr. President, $705 was the estimated compliance cost for a Tennessean in 2005. And operating costs for the Internal Revenue Service almost tripled between 1970 and 2004. Think how much money we would save if every American had the option of filing a one-page, 17 percent flat tax and if every American business had the option of doing the same. Here is what the optional flat tax legislation I will be introducing this week will do. As I mentioned earlier, it will simplify the Tax Code by providing an optional flat tax on individuals and businesses. It will be a 19 percent flat tax for the first 2 years, 17 percent flat tax after the first 2 years, and it would create the option to file, as I mentioned, a simple one-page return. The legislation I am introducing is almost identical to H.R. 1040 introduced by Congressman Michael Burgess, a Republican from Texas, in the House of Representatives. Congressman Burgess introduced his legislation on February 2007 and it has six cosponsors. My legislation is very straightforward. If an individual selects the option to pay a flat tax in lieu of the current income tax, the option is irrevocable. Under the flat tax, taxable income has a very simple definition. It will consist simply of wages and pensions. You do not start paying taxes on your income -- wages and pensions -- until you reach a certain exemption level. For a married couple filing jointly, the exemption level is $25,580, indexed to inflation. For the single head of a household, you wouldn't start paying taxes until you reached $16,330, indexed for inflation; for a single person, $12,790, indexed for inflation; and $5,510 for each dependent. For example, a family of four would not pay the flat tax until the family's combined income reached $36,600. That is $25,580 for joint filers plus $5,510 times two for the two dependents. No other deductions would exist. This optional flat tax would eliminate the marriage penalty, so it is pro-family. This optional flat tax would eliminate the millionaires tax, which was put in place in the late 1960s to catch a few millionaires and today is catching millions of middle-class Americans. It is called the alternative minimum tax or AMT. The optional flat tax for businesses is equally straightforward. It gives the business the option to pay a flat tax in lieu of the current corporate tax structure. Once a business selects this option, it is irrevocable. As it is on the individual income tax form, there is a 19 percent tax rate for the first 2 years and then a 17 percent tax rate for all other years. Businesses would be taxed on the difference of total revenue minus expenses -- again, a very simple definition of income. Expenses would include wages, pensions, and the costs of new business equipment. This would provide for the immediate expensing of business capital equipment. This immediate expensing should be a very pro-growth provision in our Tax Code -- rather than the current Code which requires spreading it out over a number of years. No other deductions would exist. The current tax system is overly complicated and lengthy. The Tax Code and corresponding regulations are over 67,000 pages and include 7 million words. It was only 400 pages in 1913 when the Federal income tax was first introduced, and it has now grown to over 67,000 pages. Taxpayers are expected to understand and comply with this complicated Tax Code and it gets increasingly impossible to do. That is why I, and a great many Americans and American businesses, will welcome the opportunity to file a one-page, simplified flat tax in lieu of the current system. The optional flat tax that I propose is intended to be revenue neutral. It is intended, in other words, neither to raise more revenues than the current tax system or less revenues than the current tax system. Arguably, a simpler tax will raise more revenues because a great many people pay less in taxes because they simply do not understand the forms. But the intention of my legislation is that the taxes collected, the revenue level, will be the same. Finally, I urge that our nation’s revenue level is not about to stay the same. Already the largest share of the average American's budget goes to pay taxes. Taxes are high. Americans currently spend 113 days of every year working to pay their Federal, State, and local taxes -- almost twice the number of days they work to pay for housing and more than three times the number of days they work to pay for food. Beginning in 2010, the amount of time Americans currently spend working to satisfy their tax bills will increase as millions of lower- and middle-income Americans and small businesses face significant tax hikes. Democratic leaders in Congress have already allowed the state and local sales tax exemption, which affects Tennesseans, to expire. That is $400 a year for 600,000 Tennesseans, and the Democrats appear to be ready to let tax relief for millions of lower and middle-income Americans meet the same fate when those tax levels expire in 2010. Failure of Congress to act to stop these tax hikes will result in the largest tax increase in United States history, and that is one of the worst things we could do to the family budget. Taxes are too high today and we are about to face the largest tax increase in United States history. But while we are debating tax issues in the Senate, we can do something much simpler so that next year, when Americans go about completing their tax returns, they do not spend an average of 26 hours. Instead, they fill out one page. They do not take an average of 13.6 hours to complete form 1040; they fill out one page. Compliance costs are not $265 billion; they are dramatically reduced. Compliance costs for Tennesseans, $705 dollars in 2005, go down by hundreds of dollars a year. The operating costs of the IRS ought to be cut, instead of increasing, as they review one-page optional tax forms. The same would be true for businesses who also would have the option of filing a flat 17 percent tax, on one page. So as we look ahead to tomorrow and filing our tax returns, and we think about the upcoming debate about whether to stop the largest tax increase in history, let's get on a constructive page and say to the American people: By this time next year, April 15, 2009, you will have the option of filing a one-page Federal income tax return with a 19 percent rate for 2 years and 17 percent rate thereafter; businesses will get the same thing. It will save money. It will encourage growth, and it will relieve a great deal of anxiety that occurs every spring when April 15 rolls around.