text: SECTION 1. INDIVIDUALS TAXED ONLY ON EARNED INCOME.
  
      (a) In General.--Section 1 of the Internal Revenue Code of 1986 is 
  amended to read as follows:
  
  ``SECTION 1. TAX IMPOSED.
  
      ``(a) Imposition of Tax.--There is hereby imposed on the income of 
  every individual a tax equal to 20 percent of the excess (if any) of--
              ``(1) the taxable earned income received or accrued during 
          the taxable year, over
              ``(2) the standard deduction (as defined in section 63) for 
          such taxable year.
      ``(b) Taxable Earned Income.--For purposes of this section, the 
  term `taxable earned income' means the excess (if any) of earned income 
  (as defined in section 911(d)(2)) over the foreign earned income (as 
  defined in section 911(b)(1)).''
      (b) Increase in Standard Deduction.--Section 63 of such Code is 
  amended to read as follows:
  
  ``SEC. 63. STANDARD DEDUCTION.
  
      ``(a) In General.--For purposes of this subtitle, the term 
  `standard deduction' means the sum of--
              ``(1) the basic standard deduction, plus
              ``(2) the additional standard deduction.
      ``(b) Basic Standard Deduction.--For purposes of subsection (a), 
  the basic standard deduction is--
              ``(1) $16,500 in the case of--
                      ``(A) a joint return, and
                      ``(B) a surviving spouse (as defined in section 
                  2(a)),
              ``(2) $14,000 in the case of a head of household (as 
          defined in section 2(b)), and
              ``(3) $9,500 in the case of an individual--
                      ``(A) who is not married and who is not a surviving 
                  spouse or head of household, or
                      ``(B) who is a married individual filing a separate 
                  return.
      ``(c) Additional Standard Deduction.--For purposes of subsection 
  (a), the additional standard deduction is $4,500 for each dependent (as 
  defined in section 152) described in section 151(c)(1) for the taxable 
  year.
      ``(d) Inflation Adjustment.--
              ``(1) In general.--In the case of any taxable year 
          beginning in a calendar year after 1995, each dollar amount 
          contained in subsections (b) and (c) shall be increased by an 
          amount equal to--
                      ``(A) such dollar amount, multiplied by
                      ``(B) the cost-of-living adjustment under section 
                  1(f)(3) for the calendar year in which the taxable year 
                  begins, determined by substituting `calendar year 1994' 
                  for `calendar year 1992' in subparagraph (B) of such 
                  section.
              ``(2) Rounding.--If any increase determined under paragraph 
          (1) is not a multiple of $50, such amount shall be rounded to 
          the next lowest multiple of $50.''
  
  SEC. 2. INCOME TAX DEDUCTION FOR CASH CHARITABLE CONTRIBUTIONS.
  
      (a) In General.--Subsection (a) of section 170 of the Internal 
  Revenue Code of 1986 (relating to charitable, etc., contributions and 
  gifts) is amended--
              (1) by striking paragraph (1) and inserting the following 
          new paragraph:
              ``(1) General rule.--There shall be allowed as a deduction 
          any charitable contribution (as defined in subsection (c)) not 
          to exceed $2,500 ($1,250, in the case of a married individual 
          filing a separate return), payment of which is made within the 
          taxable year.'', and
              (2) by striking paragraph (3).
      (b) Conforming Amendments.--
              (1) Section 170(b) of the Internal Revenue Code of 1986 is 
          amended by adding at the end the following new paragraph:
              ``(3) Termination of subsection.--This subsection shall not 
          apply to taxable years beginning after December 31, 1995.''
              (2) Section 170(c) of such Code is amended by inserting 
          ``of cash or its equivalent'' after ``means a contribution or 
          gift''.
              (3) Subsections (d) and (e) of section 170 of such Code are 
          repealed.
              (4) Section 170(f) of such Code is amended by striking 
          paragraphs (1) through (7) and by redesignating paragraphs (8) 
          and (9) as paragraphs (1) and (2), respectively.
              (5) Subsections (h) and (i) of section 170 of such Code are 
          repealed.
  
  SEC. 3. LIMITATION OF HOME MORTGAGE DEDUCTION TO ACQUISITION 
                INDEBTEDNESS.
  
      Paragraph (3) of section 163(h) of the Internal Revenue Code of 
  1986 (relating to interest) is amended--
              (1) by striking subparagraphs (A), (C), and (D) and 
          inserting before subparagraph (B) the following new 
          subparagraph:
                      ``(A) In general.--The term `qualified residence 
                  interest' means any interest which is paid or accrued 
                  during the taxable year on acquisition indebtedness 
                  with respect to any qualified residence of the 
                  taxpayer. For purposes of the preceding sentence, the 
                  determination of whether any property is a qualified 
                  residence of the taxpayer shall be made as of the time 
                  the interest is accrued.'', and
              (2) by striking ``$1,000,000'' each place it appears and 
          ``$500,000'' in subparagraph (B)(ii) and inserting ``$100,000'' 
          and ``$50,000'', respectively.
  
  SEC. 4. MODIFICATION OF TAX ON BUSINESS ACTIVITIES.
  
      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 20 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.--
              ``(1) In general.--For purposes of this section, the term 
          `business taxable income' means gross active income reduced by 
          the deductions specified in subsection (d).
              ``(2) Gross active income.--For purposes of paragraph (1), 
          the term `gross active income' means gross income other than 
          investment income.
      ``(d) Deductions.--
              ``(1) In general.--The deductions specified in this 
          subsection are--
                      ``(A) the cost of business inputs for the business 
                  activity,
                      ``(B) the compensation (including contributions to 
                  qualified retirement plans but not including other 
                  fringe benefits) paid for employees performing services 
                  in such activity, and
                      ``(C) the cost of tangible personal and real 
                  property used in such activity.
              ``(2) Business inputs.--For purposes of subparagraph (A), 
          the term `cost of business inputs' means--
                      ``(A) the actual amount paid for goods, services, 
                  and materials, whether or not resold during the taxable 
                  year,
                      ``(B) the fair market value of business inputs 
                  brought into the United States, and
                      ``(C) the actual cost, if reasonable, of travel and 
                  entertainment expenses for business purposes.
          Such term shall not include purchases of goods and services 
          provided to employees or owners.
      ``(e) Carryover of Excess Deductions.--
              ``(1) In general.--If the aggregate deductions for any 
          taxable year exceed the gross active income for such taxable 
          year, the amount of the deductions specified in subsection (d) 
          for the succeeding taxable year (determined without regard to 
          this subsection) shall be increased by 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.
              ``(2) 3-month treasury rate.--For purposes of paragraph 
          (1), 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.''
  
  SEC. 5. EFFECTIVE DATE.
  
      The amendments made by this Act shall apply to taxable years 
  beginning after December 31, 1995.
target: Amends the Internal Revenue Code to impose a 20 percent tax on the taxable earned income of every individual.  Bases such amount on the standard deduction.  (Replaces current income tax procedures for individuals.) 
  Increases the basic standard deduction and includes an additional standard deduction (limited to dependents only), with inflation adjustments. 
  Limits charitable contributions to $2,500 ($1,250 in the case of married individuals filing separately). 
  Limits the deduction for interest paid on a home mortgage to the amount of acquisition indebtedness, with limitations. 
  Replaces the current tax on corporations with a tax on every person engaged in a business activity equal to 20 percent of the business taxable income of such person.  Makes the person engaged in the business activity liable for the tax.
feat_title: A bill to amend the Internal Revenue Code of 1986 to impose a flat tax only on the earned income of individuals and the business taxable income of corporations, and for other purposes.