S. 1145 - Simplified, Manageable, And Responsible Tax (SMART) Act

116TH CONGRESS
1ST SESSION

S. 1145

To repeal the current Internal Revenue Code and replace it with a flat tax,
thereby guaranteeing economic growth and fairness for all Americans.

IN THE SENATE OF THE UNITED STATES

APRIL 11, 2019

Mr. SHELBY introduced the following bill; which was read twice and
referred to the Committee on Finance

A BILL

To repeal the current Internal Revenue Code and replace it with a flat tax, thereby guaranteeing economic growth and fairness for all Americans.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE. — This Act may be cited as the "Simplified, Manageable, And Responsible Tax Act" or the "SMART Act".

(b) TABLE OF CONTENTS. —

Sec. 1. Short title; table of contents.

TITLE I — TAX REDUCTION AND SIMPLIFICATION

Sec. 101. Individual income tax.

Sec. 102. Tax on business activities.

Sec. 103. Simplification of rules relating to qualified retirement plans.

Sec. 104. Repeal of alternative minimum tax.

Sec. 105. Repeal of credits.

Sec. 106. Repeal of estate and gift taxes and obsolete income tax provisions.

Sec. 107. Effective date.

TITLE II — SUPERMAJORITY REQUIRED FOR TAX CHANGES

Sec. 201. Supermajority required.

TITLE I — TAX REDUCTION AND SIMPLIFICATION

SEC. 101. INDIVIDUAL INCOME TAX.

(a) IN GENERAL. — Section 1 of the Internal Revenue Code of 1986 is amended to read as follows:

"SECTION 1. TAX IMPOSED.

"There is hereby imposed on the taxable income of every individual a tax equal to 17 percent of the taxable income of such individual for such taxable year.".

(b) TAXABLE INCOME. — Section 63 of the Internal Revenue Code of 1986 is amended to read as follows:

"SEC. 63. TAXABLE INCOME.

"(a) IN GENERAL. — For purposes of this subtitle, the term 'taxable income' means the excess of —

"(1) the sum of —

"(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 includible 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.

"(b) STANDARD DEDUCTION. —

"(1) IN GENERAL. — For purposes of this subtitle, the term 'standard deduction' means the sum of —

"(A) the basic standard deduction, plus

"(B) the additional standard deduction.

"(2) BASIC STANDARD DEDUCTION. — For purposes of paragraph (1), the basic standard deduction is —

"(A) $29,190 in the case of —

"(i) a joint return, or

"(ii) a surviving spouse (as defined in section 2(a)),

"(B) $18,630 in the case of a head of household (as defined in section 2(b)), and

"(C) $14,590 in the case of an individual —

"(i) who is not married and who is not a surviving spouse or head of household, or

"(ii) who is a married individual filing a separate return.

"(3) ADDITIONAL STANDARD DEDUCTION. — For purposes of paragraph (1), the additional standard deduction is $6,290 for each dependent (as defined in section 152) who is described in section 151(c) for the taxable year and who is not required to file a return for such taxable year.

"(c) RETIREMENT DISTRIBUTIONS. — For purposes of subsection (a), the term 'retirement distribution' means any distribution from —

"(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),

"(2) an annuity plan described in section 403(a),

"(3) an annuity contract described in section 403(b),

"(4) an individual retirement account described in section 408(a),

"(5) an individual retirement annuity described in section 408(b),

"(6) an eligible deferred compensation plan (as defined in section 457),

"(7) a governmental plan (as defined in section 414(d)), or

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

Such term includes any plan, contract, account, annuity, or trust which, at any time, has been determined by the Secretary to be such a plan, contract, account, annuity, or trust.

"(d) INCOME OF CERTAIN CHILDREN. — For purposes of this subtitle —

"(1) an individual's taxable income shall include the taxable income of each dependent child of such individual who has not attained age 14 as of the close of such taxable year, and

"(2) such dependent child shall have no liability for tax imposed by section 1 with respect to such income and shall not be required to file a return for such taxable year.

"(e) INFLATION ADJUSTMENT. —

"(1) IN GENERAL. — In the case of any taxable year beginning in a calendar year after 2020, each dollar amount contained in subsection (b) 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 purposes 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 2019.

"(3) CPI FOR ANY CALENDAR YEAR. — For purposes 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 August 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 of the Consumer Price Index which is most consistent 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 multiple of $10.

"(f) MARITAL STATUS. — For purposes of this section, marital status shall be determined under section 7703.".

SEC. 102. TAX ON BUSINESS ACTIVITIES.

(a) IN GENERAL. — Section 11 of the Internal Revenue Code of 1986 (relating to tax imposed on corporations) is amended to read as follows:

"SEC. 11. TAX IMPOSED ON BUSINESS ACTIVITIES.

"(a) TAX IMPOSED. — There is hereby imposed on every person engaged in a business activity a tax equal to 17 percent of the business taxable income of such person.

"(b) LIABILITY FOR TAX. — The tax imposed by this section shall be paid by the person engaged in the business 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 paragraph (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 activity, 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 received, plus any money received.

"(C) COORDINATION WITH SPECIAL RULES FOR FINANCIAL SERVICES, ETC. — Except as provided in subsection (e) —

"(i) the term 'property' does not include money or any financial instrument, and

"(ii) the term 'services' does not include financial services.

"(3) EXEMPTION FROM TAX FOR ACTIVITIES OF GOVERNMENTAL ENTITIES AND TAX-EXEMPT ORGANIZATIONS. — 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 retirement distributions (as defined in section 63(c)) for the benefit of such employees to the extent such contributions are allowed as a deduction under section 404.

"(2) BUSINESS INPUTS. —

"(A) IN GENERAL. — For purposes of paragraph (1), the term 'cost of business inputs' means —

"(i) the amount paid for property sold or used in connection with a business activity,

"(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 business activity, and

"(iii) any excise tax, sales tax, customs duty, or other separately stated levy imposed by a Federal, State, or local government 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.

"(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 connection with the exchange of property or services is the fair market value of the property or services exchanged, plus any money paid.

"(e) SPECIAL RULES FOR FINANCIAL INTERMEDIATION 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 activity.

"(f) EXCEPTION FOR SERVICES PERFORMED AS EMPLOYEE. — 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 EXCESS DEDUCTIONS. —

"(1) IN GENERAL. — If the aggregate deductions for any taxable year exceed the gross active income 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 DEDUCTIONS. — 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 subsection (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 section for such year, then (in lieu of treating such excess 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, 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 average market yield (during any 1-month period selected by the Secretary and ending in the calendar month in which the determination is made) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 months or less.".

(b) TAX ON NONCASH COMPENSATION PROVIDED TO EMPLOYEES NOT ENGAGED IN BUSINESS ACTIVITY. — Section 4977 of the Internal Revenue Code of 1986 is amended to read as follows:

"SEC. 4977. TAX ON NONCASH COMPENSATION PROVIDED TO EMPLOYEES NOT ENGAGED IN BUSINESS ACTIVITY.

"(a) IMPOSITION OF TAX. — There is hereby imposed a tax equal to 17 percent of the value of excludable compensation provided during the calendar year by an employer for the benefit of employees to whom this section applies.

"(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 employee other than —

"(1) wages (as defined in section 3121(a) without regard to paragraph (1) thereof) which are paid in cash,

"(2) remuneration for services performed outside the United States, and

"(3) retirement contributions to or under any plan or arrangement which makes retirement distributions (as defined in section 63(c)).

"(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

"(2) any agency or instrumentality of the United States, any State or political subdivision of a State, or the District of Columbia.".

SEC. 103. SIMPLIFICATION OF RULES RELATING TO QUALIFIED RETIREMENT PLANS.

(a) IN GENERAL. — The following provisions of the Internal Revenue Code of 1986 are hereby repealed:

(1) NONDISCRIMINATION RULES. —

(A) Paragraphs (4) and (5) of section 401(a) (relating to nondiscrimination requirements).

(B) Sections 401(a)(10)(B) and 416 (relating to top heavy plans).

(C) Section 401(a)(17) (relating to compensation limit).

(D) Paragraphs (3), (6), and (26) of section 401(a), and section 410(b) (relating to minimum participation and coverage requirements).

(E) Paragraphs (3), (8), (11), (12), and (13) of section 401(k), and section 4979 (relating to actual deferral percentage).

(F) Section 401(l) (relating to permitted disparity in plan contributions or benefits).

(G) Section 401(m) (relating to nondiscrimination test for matching contributions and employee contributions).

(H) Paragraphs (1)(D) and (12) of section 403(b) (relating to nondiscrimination requirements).

(I) Paragraphs (3) and (6) (other than subparagraph (A)(i) thereof) of section 408(k) (relating to simplified employee pensions).

(2) CONTRIBUTION LIMITS. —

(A) Sections 401(a)(16), 402(h)(2),403(b)(3) and (4), and 415 (relating to limitations on benefits and contributions under qualified plans).

(B) Sections 401(a)(30), 402(g), and 403(b)(1)(E) (relating to limitation on exclusion for elective deferrals).

(C) Paragraphs (3) and (7) of section 404(a) (relating to percentage of compensation limits).

(D) Section 404(l) (relating to limit on includible compensation).

(3) RESTRICTIONS ON DISTRIBUTIONS. —

(A) Section 72(t) (relating to 10 percent additional tax on early distributions from qualified retirement plans).

(B) Sections 401(a)(9), 403(b)(10), and 4974 (relating to minimum distribution rules).

(C) Section 402(e)(4) (relating to net unrealized appreciation).

(4) SPECIAL REQUIREMENTS FOR PLAN BENEFITTING SELF-EMPLOYED INDIVIDUALS. — Subsections (a)(10)(A) and (d) of section 401.

(5) PROHIBITION OF TAX-EXEMPT ORGANIZATIONS AND GOVERNMENTS FROM HAVING QUALIFIED CASH OR DEFERRED ARRANGEMENTS. — Section 401(k)(4)(B).

(b) EMPLOYER REVERSIONS OF EXCESS PENSION ASSETS PERMITTED SUBJECT ONLY TO INCOME INCLUSION. —

(1) REPEAL OF TAX ON EMPLOYER REVERSIONS. — Section 4980 of the Internal Revenue Code of 1986 is hereby repealed.

(2) EMPLOYER REVERSIONS PERMITTED WITHOUT PLAN TERMINATION. — Section 420 of such Code is amended to read as follows:

"SEC. 420. TRANSFERS OF EXCESS PENSION ASSETS.

"(a) IN GENERAL. — If there is a qualified transfer of any excess pension assets of a defined benefit plan (other than a multi-employer plan) to an employer —

"(1) a trust which is part of such plan shall not be treated as failing to meet the requirements of section 401(a) or any other provision of law solely by reason of such transfer (or any other action authorized under this section), and

"(2) such transfer shall not be treated as a prohibited transaction for purposes of section 4975.

The gross income of the employer shall include the amount of any qualified transfer made during the taxable year.

"(b) QUALIFIED TRANSFER. — For purposes of this section —

"(1) IN GENERAL. — The term 'qualified transfer' means a transfer —

"(A) of excess pension assets of a defined benefit plan to the employer, and

"(B) with respect to which the vesting requirements of subsection (c) are met in connection with the plan.

"(2) ONLY 1 TRANSFER PER YEAR. — No more than 1 transfer with respect to any plan during a taxable year may be treated as a qualified transfer for purposes of this section.

"(c) VESTING REQUIREMENTS OF PLANS TRANSFERRING ASSETS. — The vesting requirements of this subsection are met if the plan provides that the accrued pension benefits of any participant or beneficiary under the plan become nonforfeitable in the same manner which would be required if the plan had terminated immediately before the qualified transfer (or in the case of a participant who separated during the 1-year period ending on the date of the transfer, immediately before such separation).

"(d) DEFINITION AND SPECIAL RULE. — For purposes of this section —

"(1) EXCESS PENSION ASSETS. — The term 'excess pension assets' means the excess (if any) of —

"(A) the lesser of —

"(i) the fair market value of the plan's assets (reduced by the prefunding balance and funding standard carryover balance determined under section 430(f)), or

"(ii) the value of plan assets as determined under section 430(g)(3) after reduction under section 430(f), over

"(B) 125 percent of the sum of the funding target and the target normal cost determined under section 430 for such plan year.

"(2) COORDINATION WITH SECTIONS 430 AND 433. — In the case of a qualified transfer —

"(A) any assets so transferred shall not, for purposes of this section and sections 430 and 433, be treated as assets in the plan, and

"(B) in the case of a CSEC plan, the plan shall be treated as having a net experience loss under section 433(b)(2)(B)(iv) in an amount equal to the amount of such transfer and for which amortization charges begin for the first plan year after the plan year in which such transfer occurs, except that such section shall be applied to such amount by substituting '10 plan years' for '5 plan years'.".

SEC. 104. REPEAL OF ALTERNATIVE MINIMUM TAX.

Part VI of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is hereby repealed.

SEC. 105. REPEAL OF CREDITS.

Part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is hereby repealed.

SEC. 106. REPEAL OF ESTATE AND GIFT TAXES AND OBSOLETE INCOME TAX PROVISIONS.

(a) REPEAL OF ESTATE AND GIFT TAXES. —

(1) IN GENERAL. — Subtitle B of the Internal Revenue Code of 1986 is hereby repealed.

(2) EFFECTIVE DATE. — The repeal made by paragraph (1) shall apply to the estates of decedents dying, and gifts and generation-skipping transfers made, after December 31, 2017.

(b) REPEAL OF OBSOLETE INCOME TAX PROVISIONS. —

(1) IN GENERAL. — Except as provided in paragraph (2), chapter 1 of the Internal Revenue Code of 1986 is hereby repealed.

(2) EXCEPTIONS. — Paragraph (1) shall not apply to —

(A) sections 1, 11, and 63 of such Code, as amended by this Act,

(B) those provisions of chapter 1 of such Code which are necessary for determining whether or not —

(i) retirement distributions are includible in the gross income of employees, or

(ii) an organization is exempt from tax under such chapter, and

(C) subchapter D of such chapter 1 (relating to deferred compensation).

SEC. 107. EFFECTIVE DATE.

Except as otherwise provided in this title, the amendments made by this title shall apply to taxable years beginning after December 31, 2017.

TITLE II — SUPERMAJORITY
REQUIRED FOR TAX CHANGES

SEC. 201. SUPERMAJORITY REQUIRED.

(a) IN GENERAL. — It shall not be in order in the House of Representatives or the Senate to consider any bill, joint resolution, amendment thereto, or conference report thereon that includes any provision that —

(1) increases any Federal income tax rate,

(2) creates any additional Federal income tax rate,

(3) reduces the standard deduction, or

(4) provides any exclusion, deduction, credit, or other benefit which results in a reduction in Federal revenues.

(b) WAIVER OR SUSPENSION. — This section may be waived or suspended in the House of Representatives or the Senate only by the affirmative vote of three-fifths of the Members, duly chosen and sworn.