text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Flat Tax Act of 1995''.
  
                             TITLE I--FLAT TAX
  
  SEC. 101. 15 PERCENT INCOME TAX RATE FOR INDIVIDUALS.
  
      Section 1 of the Internal Revenue Code of 1986 (relating to tax 
  imposed on individuals) is amended to read as follows:
  
  ``SECTION 1. TAX IMPOSED.
  
      ``(a) In General.--There is hereby imposed on the income of every 
  individual a tax equal to 15 percent of the excess of the earned income 
  of such individual for the taxable year over the standard exemption 
  amount for such year.
      ``(b) Definitions.--For purposes of this section--
              ``(1) Standard exemption amount.--
                      ``(A) In general.--The term `standard exemption 
                  amount' means the sum of--
                              ``(i) the basic standard exemption, plus
                              ``(ii) the additional standard exemption.
                      ``(B) Basic standard exemption.--For purposes of 
                  subparagraph (A), the basic standard exemption is--
                              ``(i) $20,000 in the case of--
                                      ``(I) a joint return, and
                                      ``(II) a surviving spouse (as 
                                  defined in section 2(a)),
                              ``(ii) $15,000 in the case of a head of 
                          household (as defined in section 2(b)), and
                              ``(iii) $10,000 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.
                      ``(C) Additional standard exemption.--For purposes 
                  of subparagraph (A), the additional standard exemption 
                  is $5,000 for each dependent (as defined in section 
                  152)--
                              ``(i) whose earned income for the calendar 
                          year in which the taxable year of the taxpayer 
                          begins is less than the basic standard 
                          exemption specified in subparagraph (B)(iii), 
                          or
                              ``(ii) who is a child of the taxpayer and 
                          who--
                                      ``(I) has not attained the age of 
                                  19 at the close of the calendar year in 
                                  which the taxable year of the taxpayer 
                                  begins, or
                                      ``(II) is a student who has not 
                                  attained the age of 24 at the close of 
                                  such calendar year.
                      ``(D) Inflation adjustment.--
                              ``(i) In general.--In the case of any 
                          taxable year beginning in a calendar year after 
                          1997, each dollar amount contained in 
                          subparagraphs (B) and (C) shall be increased by 
                          an amount equal to--
                                      ``(I) such dollar amount, 
                                  multiplied by
                                      ``(II) the cost-of-living 
                                  adjustment for the calendar year in 
                                  which the taxable year begins.
                              ``(ii) Cost-of-living adjustment.--For 
                          purposes of this subparagraph--
                                      ``(I) In general.--The cost-of-
                                  living adjustment for any calendar year 
                                  is the percentage (if any) by which the 
                                  CPI for October of the preceding 
                                  calendar year, exceeds the CPI for 
                                  October of 1996.
                                      ``(II) CPI.--The term `CPI' means 
                                  the last Consumer Price Index for all-
                                  urban consumers published by the 
                                  Department of Labor.
                              ``(iii) Rounding.--If the increase 
                          determined under this subparagraph is not a 
                          multiple of $10, such increase shall be rounded 
                          to the nearest multiple of $10.
              ``(2) Earned income.--
                      ``(A) In general.--Except as provided in 
                  subparagraph (B), the term `earned income' means--
                              ``(i) wages, salaries, and other employee 
                          compensation,
                              ``(ii) the amount of the taxpayer's net 
                          earnings from self-employment for the taxable 
                          year, and
                              ``(iii) the amount of dividends which are 
                          from a personal service corporation or which 
                          are otherwise directly or indirectly 
                          compensation for services.
                      ``(B) Exceptions.--The term `earned income' does 
                  not include--
                              ``(i) any amount received as a pension or 
                          annuity, or
                              ``(ii) any tip unless the amount of the tip 
                          is not within the discretion of the service-
                          recipient.''
  
  SEC. 102. TRANSITION RULE FOR HOME MORTGAGE INTEREST DEDUCTION.
  
      Section 1 of the Internal Revenue Code of 1986, as amended by 
  section 2 of this Act, is amended--
              (1) by striking subsection (a) and inserting the following 
          new subsection:
      ``(a) In General.--There is hereby imposed on the income of every 
  individual a tax equal to 15 percent of the excess of--
              ``(1) the earned income of the taxpayer for the taxable 
          year, over
              ``(2) the standard exemption amount and the excess 
          qualified residence interest amount for such taxpayer for such 
          year.'', and
              (2) in subsection (b), by redesignating paragraph (2) as 
          paragraph (3) and by inserting after paragraph (1) the 
          following new paragraph:
              ``(2) Excess qualified residence interest amount.--The 
          excess qualified residence amount for any taxable year is equal 
          to the excess (if any) of--
                      ``(A) the amount which would have been allowable as 
                  a deduction to the taxpayer for such year under section 
                  163(h)(3), as in effect on the day before the effective 
                  date of the Flat Tax Act of 1995 (determined without 
                  regard to section 68 (as so in effect)), with respect 
                  to any indebtedness incurred on or before such day, 
                  over
                      ``(B) one-half of the basic standard exemption for 
                  an individual for such year.''
  
  SEC. 103. 15 PERCENT INCOME TAX RATE FOR 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.
  
      ``(a) Tax Imposed.--There is hereby imposed on every person engaged 
  in a business activity a tax equal to 15 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.--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--
              ``(1) such excess, plus
              ``(2) the product of such excess and the 3-month Treasury 
          rate for the last month of such taxable year.''
  
  SEC. 104. REPEAL OF SPECIAL DEDUCTIONS, CREDITS, AND EXCLUSIONS FROM 
                INCOME FOR CORPORATIONS AND INDIVIDUALS.
  
      Chapter 1 of the Internal Revenue Code of 1986 is amended by 
  striking out all specific exclusions from gross income, all deductions, 
  and all credits against income tax to the extent related to the 
  computation of corporate and individual income tax liability.
  
  SEC. 105. REPEAL OF ESTATE AND GIFT TAXES.
  
      Subtitle B of the Internal Revenue Code of 1986 (relating to 
  estate, gift, and generation-skipping taxes) is hereby repealed.
  
  SEC. 106. EFFECTIVE DATES.
  
      (a) In General.--Except as provided in subsection (b), the 
  amendments made by this title shall apply to taxable years beginning 
  after December 31, 1996.
      (b) Repeal of Estate and Gift Taxes.--The repeal made by section 
  105 shall apply to estates of decedents dying, and transfers made, 
  after December 31, 1996.
      (c) Technical and Conforming Changes.--The Secretary of the 
  Treasury or the Secretary's delegate shall, as soon as practicable but 
  in any event not later than 90 days after the date of the enactment of 
  this Act, submit to the Committee on Ways and Means of the House of 
  Representatives and the Committee on Finance of the Senate a draft of 
  any technical and conforming changes in the Internal Revenue Code of 
  1986 which are necessary to reflect throughout such Code the changes in 
  the substantive provisions of law made by this Act.
  
                  TITLE II--REDUCTIONS IN FEDERAL SPENDING
  
  SEC. 201. REDUCTIONS IN FEDERAL SPENDING.
  
      (a) Adjustment of Discretionary Caps.--
              (1) Discretionary spending limits and direct spending 
          balances.--Not later than 5 days after the date of enactment of 
          this Act, the President shall reduce the discretionary spending 
          limits under section 601 of the Congressional Budget Act of 
          1974 for each of the fiscal years 1996, 1997, and 1998 to 
          reflect a reduction of 15 percent in budget authority and 
          budget outlays for each fiscal year.
              (2) Adjustment of committee allocations.--Not later than 5 
          days after the date of enactment of this Act, the chairs of the 
          Committees on the Budget of the Senate and the House of 
          Representatives shall revise levels under section 311(a) of the 
          Congressional Budget Act of 1974 and adjust the committee 
          allocations under section 602(a) of the Congressional Budget 
          Act of 1974 to reflect the reductions required by paragraph 
          (1).
      (b) Foreign Aid.--Notwithstanding subsection (a), the amount of 
  budget authority provided under budget function 150 relating to United 
  States assistance (as defined in section 481(e)(4) of the Foreign 
  Assistance Act of 1961 (22 U.S.C. 2291(e)(4)) for payments not required 
  by law shall not exceed--
              (1) for fiscal year 1996, 60 percent of the amount provided 
          for fiscal year 1995;
              (2) for fiscal year 1997, 50 percent of the amount provided 
          for fiscal year 1995; and
              (3) for fiscal year 1998, 40 percent of the amount provided 
          for fiscal year 1995.
      (c) Freeze on Department of Defense.--Notwithstanding subsection 
  (a), the amount of budget authority provided under budget function 050 
  (national defense) for payments not required by law for each of the 
  fiscal years 1996, 1997, and 1998 shall not exceed the amount provided 
  for fiscal year 1995.
      (d) No Reduction in the Administrative Expenses of the Social 
  Security Administration and Medicare.--Notwithstanding subsection (a), 
  the amount of budget authority provided for the administrative expenses 
  of the Social Security Administration and medicare for payments not 
  required by law for each of the fiscal years 1996, 1997, and 1998 shall 
  not be reduced by reason of subsection (a).
  
  SEC. 202. REDUCTION IN DIRECT SPENDING.
  
      (a) Reduction.--
              (1) In general.--Except as provided in paragraph (2), the 
          level of direct spending for fiscal years 1996, 1997, and 1998 
          shall not exceed 85 percent of the level for fiscal year 1995.
              (2) Exception.--Paragraph (1) shall not apply to--
                      (A) social security;
                      (B) medicare; and
                      (C) veterans' programs.
      (b) Implementing Legislation.--
              (1) Committee action.--Not later than September 1, 1995, 
          the committees of the House of Representatives and Senate shall 
          report legislation reducing the direct spending programs within 
          their jurisdiction as required by subsection (a).
              (2) Enactment.--Not later than September 30, 1995, the 
          Senate and the House of Representatives shall enact legislation 
          complying with paragraph (1).
  
  SEC. 203. ELIMINATION OF THE INTERNAL REVENUE SERVICE.
  
      (a) Elimination of the Internal Revenue Service.--Effective January 
  1, 1997, the Internal Revenue Service is abolished.
      (b) Transfer of Functions.--
              (1) Function defined.--For purposes of this subsection, the 
          term ``function'' means any duty, obligation, power, authority, 
          responsibility, right, privilege, activity, or program.
              (2) Transfer to treasury.--The functions of the Internal 
          Revenue Service are transferred to the Department of the 
          Treasury.
              (3) Transfer to secretary.--The functions of the 
          Commissioner of Internal Revenue shall be performed by the 
          Secretary of the Treasury or the designee of the Secretary.
      (b) Amendment to the Internal Revenue Code of 1986.--Section 
  7802(a) of the Internal Revenue Code of 1986 is repealed.
      (c) References.--Reference in any other Federal law, Executive 
  order, rule, regulation, or delegation of authority, or any document of 
  or relating to--
              (1) the Commissioner of Internal Revenue with regard to 
          functions transferred under this subsection, shall be deemed to 
          refer to the Secretary of the Treasury; and
              (2) the Internal Revenue Service with regard to functions 
          transferred under this subsection, shall be deemed to refer to 
          the Department of the Treasury.
      (d) Additional Conforming Amendments.--
              (1) After consultation with the appropriate committees of 
          the Congress, the Secretary of the Treasury shall prepare and 
          submit to the Congress recommended legislation containing 
          technical and conforming amendments to reflect the changes made 
          by this subsection.
              (2) Not later than 6 months after the effective date of 
          this Act, the Secretary of the Treasury shall submit the 
          recommended legislation referred to under paragraph (1).
target: TABLE OF CONTENTS: 
       Title I:  Flat Tax 
       Title II:  Reductions in Federal Spending 
  Flat Tax Act of 1995 - 
  Title I:  Flat Tax
   - Amends the Internal Revenue Code to impose a 15 percent tax on the income of every individual.  Establishes a basic standard exemption of $20,000 for a joint return and $10,000 for an individual return, with an additional $5,000 exemption for each dependent.  Sets forth provisions for a transition rule for home mortgage interest deduction with respect to existing mortgages. 
  Imposes on every person engaged in a business activity a tax equal to 15 percent of business taxable income. 
  Repeals all specific exclusions from gross income, all deductions, and all credits against income tax to the extent related to the computation of corporate and individual income tax liability. 
  Repeals estate, gift, and generation-skipping taxes. 
  Title II:  Reductions in Federal Spending
   - Directs the President to reduce the discretionary spending limits the Congressional Budget Act of 1974 for each of FY 1996 through 1998 to reflect a reduction of 15 percent in budget authority and budget outlays for each fiscal year.  Specifies that notwithstanding the above, the amount of budget authority provided for foreign aid payments not required by law shall not exceed:  (1) for FY 1996, 60 percent of the amount provided for FY 1995; (2) for FY 1997, 50 percent of the amount provided for FY 1995; and (3) for FY 1998, 40 percent of the amount provided for FY year 1995.   Requires that notwithstanding discretionary spending limits above, the amount of budgetary authority provided for the Defense Department for payments not required by law for each of FY 1996 through 1998 shall not exceed the amount provided for FY 1995.  Directs that the amount of budget authority provided for the administrative expenses of the Social Security Administration and Medicare for payments not required by law for each of FY 1996 through 1998 shall not be reduced.  Provides that a reduction in the level of direct spending for FY 1996 through 1998 shall not exceed 85 percent of the level for FY 1995, except for:  (1) Social Security; (2) Medicare; and (3) veterans's programs.  Abolishes the Internal Revenue Service (IRS) and transfers the functions of the IRS to the Department of the Treasury. Transfers the functions of the IRS Commissioner to the Secretary of the Treasury.
feat_title: Flat Tax Act of 1995