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
• Presidents Advisory Panel on Federal Tax Reform
• May 11, 2005
• Washington, DC

2
Overview

• 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
  Nations economic growth and the future standard
  of living of all citizens
• 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

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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

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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

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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
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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

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Origins of SUSAT

• 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

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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

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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 Presidents Tax Reform Panel