House Holds Hearing Today On Fundamental Tax Reform Proposals

The Subcommittee on Tax Policy of the House Ways & Mean Committee holds a hearing today on Fundamental Tax Reform Proposals:

Rep. Devin Nunes (R-CA), a member of the Ways and Means Committee, will testify in support of his bill, H.R. 4377, the American Business Competitiveness (ABC) Act of 2015. This proposal would tax a business based on its actual cash-flow instead of its income.

Rep. Michael Burgess (R-TX) will discuss the merits of his bill, H.R. 1040, the Flat Tax Act. This proposal gives businesses and individuals the choice to opt-in to a 17% flat tax and to be taxed on a cash-flow basis for business activities.

Rep. Robert Woodall (R-GA) will speak in support of his bill, H.R. 25, the FairTax Act of 2015. This proposal would repeal all federal income, payroll and withholding, and estate and gift taxes. The taxes would be replaced with a national sales tax on gross payments of taxable property or services.

In connection with the hearing, the Joint Committee on Taxation has released Background On Cash-Flow And Consumption-Based Approaches To Taxation (JCX 14-16):

The House Ways and Means Subcommittee on Tax Policy has scheduled a hearing on March 22, 2016, to discuss Member proposals relating to fundamental reform of the income tax system. This hearing will focus in particular on cash-flow and consumption-based approaches to taxation. This document,1 prepared by the staff of the Joint Committee on Taxation, provides general background on cash-flow and consumption-based approaches to taxation (without describing or analyzing any particular legislative proposal).

Part I provides an overview of the proposals and issues that are discussed in this document. Part II summarizes the present-law Federal tax system. Part III offers a general description of four tax systems that adopt a cash-flow and consumption-based approach to taxation: the value-added tax (“VAT”), the flat tax, the X-tax, and the national retail sales tax. Part IV analyzes these proposals and provides a general discussion of cash-flow and consumption-based approaches to taxation. In addition, Part IV evaluates these proposals in the context of four criteria that economists have used to examine the effectiveness of tax systems: efficiency, equity, simplicity, and administration.