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Folks, here's an obviously biased, but fairly comprehensive analysis of the Freedom and Fairness Restoration Act (HR 4585?) being promoted by much of the House of Reps leadership. At present (8/95) it's too early to tell it's fate although elements of it have been included in a number of other pieces of legislation, some of which have been signed by the Pres. - staff

Our government is too big, and it spends, taxes, and regulates too much. The Freedom and Fairness Restoration Act will begin a roll back. It launches a frontal assault on Big Government, radically changing virtually everything the government does. Americans must now make a fundamental choice: Should the government become ever larger as our freedom diminishes--or should we take dramatic action now to halt the growth of government and restore the promise of greater freedom to our citizens? The Freedom and Fairness Restoration Act is a way of saying "Enough is enough."
It is a comprehensive assault on Big Government, designed to halt its growth, expose its true cost, and limit its influence on the lives of free Americans.


Explanation of H.R. 4585

The Freedom and Fairness Restoration Act
Introduced by Representative Dick Armey on June 16, 1994??

Title I: A New, Fair Tax System

Establish a flat income tax rate of 17 percent on all income.

Under the bill, the current complicated tax system is replaced with a low, simple flat tax. All income would be taxed once -- and only once -- at a rate of 17 percent (when fully phased in by 1997). Income would be taxed under either the individual wage tax or the business tax.

Individual Wage Tax. Under the individual wage tax, all wages, salaries, and pensions are taxed at the flat 17 percent rate. In 1997, a personal exemption of $13,100 would be permitted for a single person, $17,200 for a single head of household, $26,200 for a married couple filing jointly and $5,300 for each dependent. For virtually all taxpayers, this would result in a tax cut, especially for families with children. To prevent the double- taxation of income, earnings from savings is not included in taxable income, and, therefore, not subject to taxation.

Business Tax. Under the business tax, owners of businesses would pay a 17 percent rate on the difference (if positive) between revenue and expenses. Subject to the business tax are corporate, partnership, professional, farm, and rental profits and royalties. The base for the tax is gross revenue less purchases of goods and services, capital equipment, structures, land, and wages paid to employees. No deductions are permitted for fringe benefits, interest, or payments to owners.

Because the various exemptions, loopholes, complicated depreciation schedules, and targeted tax breaks are eliminated, the tax return is simple enough to be filled out on a postcard, saving taxpayers countless hours and expense filing tax returns. By eliminating the double-taxation of saving and allowing complete expensing, the bill will spur investment and economic growth. Because of the generous exemptions, millions of taxpayers are taken off the rolls entirely, and middle income Americans receive a tax cut. The doubling of the dependent deduction would provide significant tax relief for families with children.

Minimize the initial static revenue loss by phasing in the 17 percent as spending and the deficit fall.

The Armey bill provides for a new contract with the American people. As federal spending falls and the deficit is lowered, taxes will be correspondingly lowered. Under the bill, the tax rate is set at 20 percent in the first year, providing most Americans a modest tax cut yet limiting revenue loss. In the third year, the rate is lowered to 17 percent, providing additional tax relief. This can be accomplished for two reasons. First, as the economy grows because of the favorable treatment of saving, investment, and low marginal tax rates, revenue to the Treasury will grow. Second, the spending restraint provided for in the bill (discussed below) will reduce expenditures. Therefore, higher revenue coupled with lower spending will reduce future deficits, freeing up resources to be returned to the American people. That's why the rate is lowered to 17 percent in the third year, providing Americans additional tax relief.

Eliminate the hidden cost of government by ending income tax withholding.

Because most income taxes are taken directly out of Americans' paychecks, the burden of high federal taxes is largely hidden from the American people. By concealing the true cost of government, the political class has built in a bias in favor of larger government. Under the Armey bill, withholding is eliminated. Because Americans would write a check to the IRS each month when they pay their other bills, they would be able to measure the true cost of government against the benefits.

Title II: Real Spending Restraint

Reinvent government by sunsetting virtually every federal program.

Under the bill, all unearned entitlement and discretionary programs would be sunset within the first two years of passage. An "unearned" entitlement is defined as an entitlement not earned in service or paid for in total or in part by assessments or contributions. Social Security, Medicare, veterans' benefits and retirement programs are earned entitlements, and are not sunsetted. All other programs would be sunsetted within two years of passage of the bill. All unearned entitlements and discretionary programs would be sunset every ten years, after each census.

This provision would genuinely reinvent government by forcing Congress to review virtually every federal program. Sunsetting forces Congress to periodically review the effectiveness of programs, set new priorities, and reduce unnecessary spending.

Place spending caps on the growth of entitlement programs.

The total level of entitlement spending -- excluding Social Security -- may not exceed the increase in the consumer price index plus the growth in eligible population. If the increase in these programs exceeds this level, an entitlement sequester to eliminate the excess spending will occur on all entitlements except Social Security.

Entitlement spending now accounts for more than half of spending and is the fastest growing portion of the budget. The entitlement sequester will place strong pressure on Congress to make genuine reforms when reauthorizing sunsetted programs.

Establish caps on total federal spending.

The plan would limit the growth in total federal spending after freezing it for one year in 1995. If spending exceeded the maximum spending amount established in law, an across the board sequester would cut 80 percent from domestic discretionary spending and 20 percent from defense spending.

The bill also contains a "look-back" sequester. On July 1 of each fiscal year, OMB is required under this bill to determine the extent to which the spending cap may be exceeded. If the limit will be exceeded, a look back sequester will eliminate the excess spending under the same 80-20 formula.

Capping federal spending with an enforceable sequester is the only way to ensure that federal spending does not exceed a certain level of growth.

Provide for a joint budget resolution.

The bill would provide for a joint budget resolution, replacing the present concurrent resolution, making the president a full participant in the budget process early in the year. Besides making the president a full participant in the drafting in the federal budget from the beginning of the process, this also prevents the rules committees from waiving budget points of order because a joint budget resolution has the force of law.

Title III: Open and Honest Regulating

Protect private property rights.

This provision protects the rights of private property owners by requiring the federal government to compensate landowners when federal regulations have the effect of significantly reducing the value of private property.

Many private property owners have had their land essentially seized from them through regulatory takings that prohibit most uses for the land. Requiring the federal government to reimburse property owners for these takings would restore protection for property owners.

Provide for a regulatory budget.

Within one year of passage of the bill, OMB would be required to determine the costs of federal regulations to the American economy. OMB would also be required to calculate the cost of federal regulations to state and local government. If OMB determines the cost of regulations will exceed the previous year's level, it would be required to submit to Congress proposed changes in existing legislation or regulations which would keep regulatory costs in line with the previous year.

This section of the bill forces Congress and the Executive Branch, for the first time, to calculate and reveal to the public the economic costs of federal laws and regulations, allowing public officials and the American people to weigh their costs against the expected benefits.

Require cost-benefit analysis and risk assessment for new legislation and regulations.

Just as the budgetary effects of proposed legislation is calculated by the Congressional Budget Office before it is considered by the House or Senate, this provision requires a CBO analysis of the economic costs of proposed regulations. For each bill considered by Congress, CBO would determine:

* The degree of risk to the public health and safety targeted by the legislation;
* The costs associated with implementing and complying with the measure; and
* The effects on the economy.

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