The Simplified Unlimited Savings Allowance Tax (SUSAT)

1. The Simplified Unlimited Savings Allowance Tax(SUSAT) Barry K. Rogstad Former President American Business Conference Before The President’s Advisory Panel on Federal Tax Reform May 11, 2005 Washington, DC

2. Advance the proposal for the Simplified Unlimited Savings Allowance Tax (SUSAT) SUSAT directly addresses the core concerns of the current tax code, that are impediments to our Nation’s economic growth and the future standard of living of all citizen’s SUSAT is a simple, plain-language rewrite of the code -It shrinks the tax code to a fraction of its present size -It is simple in its presentation: it is transparent and understandable to all users Overview

3. SUSAT • On the Business side: -Treats all businesses alike -Lowers tax rates dramatically -Allows first-year expensing of business equipment -Export income is excluded and foreign-source income is excluded on a “territorial basis” -Also allows the option for an import tax -Makes unnecessary the array of special interest deductions and credits that complicate business taxes today

4. SUSAT • On the Individual Side: -Allows all Americans the freedom to save to any level and for any purpose -- through an account patterned after the Roth IRA -Saved income is taxed only once -Maintains the current treatment for charitable giving and home mortgage interest -Adds a deduction for human capital (in the form of a benefit for post-secondary education) -Lowers and flattens tax rates, but preserves progressivity

5. How SUSAT Works The Simplified USA Tax (Generic Model) Business-Level Tax • Rate: 8% on first $150,000 and 12% on excess • Tax Base: Revenues from Domestic Operations (-) Export Income • (-) Purchases of Inventory (-) Purchases of Equipment & Services • Payroll Tax: Tax Credit for Employer-Paid Payroll Tax • Imports: Allows 12% Tax on Imported Inventory, Equipment & Services • Note: No Deduction for Wages Paid, Dividends Paid or Interest Paid Outflow of Interest and Dividends Outflow of Wages Individuals Individuals

6. How SUSAT Works Inflow of Interest and Dividends Inflow of Wages Individual-Level Tax • Rates: Progressive Rates of 15, 25, and 30% (illustrative, could be lower) -15% rate on dividends and gains • Tax Base: Wages + Interest + Dividends + Sales of Stock and Other Assets (-) Deductions • Savings: • Universal Roth IRA -- No Deduction Allowed for Contributions, but Previously-Taxed Principal and Earnings on Principal Are Not Taxed when Withdrawn from USA Roth IRA. No Limit on Contributions and No Restrictions on Withdrawals • Deduction for §401(k), etc. -- Preserves Limited Deductions Allowed under the Current Code for §401(k), Other Employer-Sponsored Qualified Plans and Deductible IRAs • Other Deductions: Deductions for Exempt Amount & Deductions for Home Mortgage Interest, Charitable Contributions & Secondary Education

7. Origins ofSUSAT • SUSAT is the distillation of a bipartisan process that has gone on for more than a decade • Senators Pete Domenici and Sam Nunn began work on the project in 1991 and continued working over the next four years to fully develop their Unlimited Savings Allowance (USA) tax proposal • Their guidelines: -Retain the familiar framework of the current income tax -Follow a proven intellectual pedigree -- the core framework stemmed from the well-known ideas of the late David Bradford -Insure bipartisan support and involvement throughout the process -Commitment to revenue neutrality and progressivity • In 1998, Republican Congressman Phil English simplified the USA Tax with SUSAT

8. The SUSAT Simplifications • Like a “consumed income” tax, the original USA Tax allowed a deduction for saving and taxed withdrawals from savings • But complex rules were needed to account for all possible saving and dissaving transactions -Transition rules were needed to track the basis of previously taxed assets that taxpayers already owned -- and it was necessary to distinguish between old saving, new saving, gross saving and net saving • The need for all these complexities disappeared under SUSAT because it, in the manner of the Roth IRA, collects the tax upfront and then exempts from further tax the yield on that after-tax savings and all withdrawals from the account -It is this simple way of accounting for savings that will give SUSAT special credibility with taxpayers, tax practitioners and government tax administrators

9. Conclusions • SUSAT is a technically rigorous, workable and understandable approach to tax restructuring • There is nothing radical about any of the working components of SUSAT. Indeed, many have been partially adopted in the current tax code • SUSAT, by preserving the income tax structure, eliminates the needs of other tax reform proposals to impose entirely new collection mechanisms and layers of administrative bureaucracy • SUSAT addresses all major criticisms of the current code: anti-growth; anti-saving and investment; excessive complexity; and taxpayer mistrust and misunderstanding • SUSAT has proven bipartisan appeal • I, therefore, respectfully suggest SUSAT is worthy of a full consideration by the members of the President’s Tax Reform Panel