By Senator Sam Nunn
I have come to the conclusion that it is time to scrap the current individual and corporate income tax and replace it with a new tax system that works.
What do I mean by a tax system that works? I mean a tax system that encourages saving and investment – the keys to economic growth. I mean a system that is fair and understandable and that reduces the cost of compliance. I mean a system that is attuned to international competitive realities. And I mean a tax system that is fiscally responsible.
Senator Pete Domenici and I have designed and introduced a new tax proposal that we believe goes far toward meeting these criteria. We call our idea the Unlimited Savings Allowance (USA) Tax System. The core of our USA proposal is the elimination of taxation on personal savings and business investment.
Under the USA individual tax, individual income would be defined much the same as it is today. But taxpayers would subtract the amount they saved and invested from what they earned during the year. The balance would then be subject to progressive tax rates. We would provide a generous exemption for spending on essentials – a tax-free “family living allowance” – and a credit to lower-income Americans for payroll taxes paid to finance Social Security.
Business would continue to pay taxes under the USA System. All businesses, corporate and non-corporate, would be taxed the same. Firms would deduct expenses from gross sales to determine gross profits, as they do today. From those gross profits, they would deduct the full cost of all investments in new plant and equipment in the year the funds are expended. The balance would then be taxed at a low, flat rate.
How does the USA System meet my criteria for a tax that works?
Senator Domenici and I believe that the USA Tax System meets the necessary criteria for a workable code. Moreover, by giving individuals the right to save without tax consequence, the USA Tax System would allow reform of costly non-means-tested entitlement programs without robbing citizens of the ability to provide for their future.
Having introduced our USA Tax System – Senate Bill 722 – our goal now is to encourage Americans to offer ideas to improve our legislation. That means fostering a national discussion on how best to align the tax code with our common desire to secure our future. Absent such a discussion, real reform, however desirable, will never happen.
Sam Nunn represents Georgia in the United States Senate. The Georgia Public Policy Foundation is a nonpartisan, member-supported research and education organization based in Atlanta, Georgia, that promotes free enterprise, limited government and individual responsibility.
Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (June, 1995) Permission is hereby given to reprint this article, with appropriate credit given.