Broad Economic Simplification Tax

The BEST Plan

S. 1921

The Broad Economic Simplification Tax (The BEST Plan), S. 1921, was introduced in the U.S. Senate by Senators Jim DeMint and Lindsay Graham of South Carolina on October 26, 2005. The lead sponsor is Senator Jim DeMint.

The BEST Plan is not a Republican or Democratic idea or plan. It is a people's plan, not a party plan. It is a plan for all Americans. This new and much needed tax policy must be achieved on a bipartisan basis.

The BEST Plan (when it is passed by Congress and signed by the president) will do significantly more for all of the American people, for our economy and for our competitive position in the global market place than anything that the U.S. Congress and our federal government has done in the last 100 years. The BEST Plan is a homerun economically and politically. It represents a truly win-win opportunity for all American wage earners, families, consumers, businesses and for our economy.

The BEST Plan was authored by Bill Helming of Olathe, Kansas (economist and business consultant), along with valuable input from many people across the United States. Bill has been fine tuning the BEST Plan since 1984.

Key points regarding Step One for the BEST Plan:

• It initially (step one) replaces 100% of all present federal government personal and corporate income taxes, plus all estate and gift taxes. The FICA payroll, excise, customs duties and all other federal government taxes remain in place. It replaces about 60% of all present federal government taxes. Step two would replace all FICA payroll and all other taxes.
• It is a two-tiered revenue neutral tax system with a uniform tax rate of 8.5%.
• Tier One is a business transfer tax. The 8.5% business transfer tax rate is applied to all gross business annual wages. There is no withholding for wage earners relative to federal income taxes. All business capital purchases (including real estate), all purchased inputs and all purchased services (including contract labor costs), are deducted from gross domestic sales in calculating business profits that are also subject to the 8.5% tax rate. There will be no depreciation from a tax standpoint as all business expenditures are deducted (expensed) in the year incurred via a cash basis of accounting. Interest expenses are not deductible for businesses, but interest income is also not included in domestic sales for businesses in calculating profits.
• Tier Two is a consumer sales tax on all consumer purchases. The sales tax is a uniform rate of 8.5% on all consumer purchases of goods and services. However, all money put into savings of any kind, all debt retirement, all purchases of stocks and bonds, all privately funded education and all charitable donations by wage earners, consumers and by families is done with pretax dollars.
• The total tax base is about one-third larger than the total tax base under the present federal income tax code. The reason for this is that all corporate, business, individual and family tax exemptions, tax breaks, tax subsidies and tax shelters are eliminated. Taxing imports also broadens the tax base significantly from what it is now. In fact, the 8.5% tax on all goods and services that come into the U.S. (imports) will account for about 11% of all the tax revenues collected under the BEST Plan.
• The U.S. economy would double in eight to 12 years because of increased investment and savings. The power of taxation shifts from the IRS and the U.S. Treasury Department to the individual consumer, wage earner and to families. This truly represents freedom and liberty for all Americans.
• Wage earners, consumers and families will have a major incentive to (1) increase savings, (2) reduce debt, (3) invest in stocks and bonds, (4) buy more homes, (5) give to charities and (6) fund private education. The reason is that money put into the above items is all done in pretax dollars under The BEST Plan, which is just the opposite of the way it is done under the present federal income tax code.
• Wage earners will see their take-home income go up overnight by 15% to 20%. This is because there will be no withholding for federal income taxes.
• For all wage earners, consumers and families (for all non-business owners) the IRS will be completely gone from their lives. They will never again be required to file a tax return, report income or be subject to an IRS audit in the future.
• Income and capital is taxed only once for individuals, families, consumers and for businesses. Obviously under the present federal income tax code, income and capital are taxed multiple times. There will be no taxes paid on capital gains, dividends, interest and rental income and no estate or gift taxes under The BEST Plan.
• The BEST Plan is very pro investment and pro new job creation. All businesses will be on a cash basis of accounting. Businesses will account for about 57% of all the income taxes paid to the federal government via the 8.5% business transfer tax. Wage earners, consumers and families will account for the remaining 43% of all federal government income taxes paid to the federal government via the 8.5% sales tax on all goods and services purchased.
• All IRS and Treasury Department penalties now associated with tax deferred savings and investment programs, such as IRA, 401-K, Keogh and SEP programs, will be eliminated under The BEST Plan relative to tax policy. All of the money in these present tax deferred programs can be used immediately and for whatever purpose and with no penalties and with a maximum tax liability of 8.5% under the BEST Plan, as opposed to a tax liability now ranging typically between 15% and 38%, depending on each individual tax paper's tax bracket under the present federal government income tax code.
• The BEST Plan will result in many U.S. companies that have international manufacturing locations with a major incentive to come back home, stay home and hire U.S. workers. This is because exports of goods and services are not taxed, while imported goods and services are taxed at the 8.5% tax rate. Since U.S. imports are not taxed now under our present income tax code, this encourages businesses to locate production outside of the U.S. and this also gives foreign firms a relative advantage in the U.S. market and abroad. U.S. imports typically far exceed U.S. exports as most people know. This by itself significantly broadens the U.S. tax base, helps keep the tax rate low at the 8.5% rate and results in raising substantially more tax dollars for the federal government without penalizing U.S. taxpayers or our economy, compared to the present federal income tax code.
• The Best Plan is, by design, transparent. All businesses and all wage earners, consumers and families will know exactly what the cost of funding the federal government is relative to replacing the present federal income tax code. Under the present federal income tax code, it is very difficult if not impossible to know what the cost of the federal government is because the taxes are hidden in the costs of goods and services. With the 8.5% business transfer tax (BTT) and the 8.5% sales tax under The BEST Plan, all taxpayers will easily know what the cost of the federal government is for tier one and for tier two from California to New York and from Texas to North Dakota. This has many advantages.
• Taxpayer collections and compliance will be substantially better under The BEST Plan, compared to what taxpayer collections and compliance is under the present federal income tax code. It is widely acknowledged and understood that there is substantial non-reporting and/or under reporting of income or the overstatement of expenses by individual, family and business taxpayers under the present federal income tax code. With the elimination of about 141 million or 95% of all present tax returns (all non-business tax returns) under The BEST Plan, taxpayer collections and compliance for funding of the federal government will be significantly better than it is now under the present federal income tax code. This will also save the non-business U.S. taxpayers collectively at least $170 billion a year! Under The BEST Plan, all businesses and the self-employed will collect the federal government taxes and file tax returns with the IRS.