Tax Reform in the 113th Congress: An Overview of Proposals

Molly F. Sherlock
Specialist in Public Finance

Most agree that the U.S. tax system is in need of substantial reforms. The 113th Congress continues to explore ways to make the U.S. tax system simpler, fairer, and more efficient. Identifying and enacting policies that will result in a simpler, fairer, and more efficient tax system remains a challenge.

Both the House- and Senate-passed budget resolutions (H.Con.Res. 25 and S.Con.Res. 8) call for substantial changes in current tax law. The House-passed proposal supports revenue-neutral comprehensive tax reform, while the Senate-passed proposal instructs the Finance Committee to draft revenue legislation that would reduce the deficit by $975 billion over the 2013 to 2023 budget window. The President’s FY2014 budget proposal also contains substantive changes to current revenue policies.

Presently, the House Committee on Ways and Means and the Senate Committee on Finance are actively engaged in tax reform deliberations. The Committee on Ways and Means has released several discussion drafts outlining options for various components of tax reform, and has also formed tax reform working groups to further consider tax reform as it relates to different issue areas. The Committee on Finance has also started releasing tax reform options papers as a process for developing a tax reform proposal.

Legislation has been introduced in the 113th Congress that would fundamentally change the U.S. federal tax system. The Fair Tax Act of 2013 (H.R. 25 / S. 122) would replace most current federal taxes with a 23% national retail sales tax. Other proposals would establish a flat tax, where individuals would be taxed on wages and businesses taxed on cash flows (see the Flat Tax Act (H.R. 1040) and the Simplified, Manageable, and Responsible Tax (SMART) Act (S. 173)). The Tax Code Termination Act (H.R. 352) would effectively repeal the current Internal Revenue Code, requiring Congress to write a new tax code that would achieve certain stated objectives.

The prevailing framework for evaluating tax policy considers equity (or fairness), efficiency, and simplicity. Equity examines the distribution of the tax burden across different groups. This information can then be used to assess the “fairness” of the tax system. A tax system that is economically efficient generally provides neutral treatment, minimizing economic distortions and maximizing output. A tax system that is simple reduces administrative and compliance costs while also promoting transparency.

Oftentimes, there are trade-offs to be considered when evaluating tax policy options. For example, shifting towards a consumption tax might enhance economic efficiency. However, taxing consumption rather than income tends to put an increased tax burden on lower-income taxpayers relative to higher-income taxpayers, reducing the progressivity of the tax system. Policymakers may want to consider the trade-off between equity and efficiency when evaluating tax policy options.


Date of Report: May 6, 2013
Number of Pages: 21
Order Number: R43060
Price: $29.95

To Order:

R43060.pdf  to use the SECURE SHOPPING CART

e-mail congress@pennyhill.com

Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

Sean Lowry 
Analyst in Public Finance

As communities face a variety of economic challenges, some are looking to local banks and financial institutions for solutions that address the specific development needs of low-income and distressed communities. Community development financial institutions (CDFIs) provide financial products and services, such as mortgage financing for homebuyers and not-for-profit developers, underwriting and risk capital for community facilities; technical assistance; and commercial loans and investments to small, start-up, or expanding businesses. CDFIs include regulated institutions, such as community development banks and credit unions, and nonregulated institutions, such as loan and venture capital funds.

The Community Development Financial Institutions Fund (the Fund), an agency within the Department of the Treasury, administers several programs that encourage the role of CDFIs, and similar organizations, in community development. Nearly 1,000 financial institutions located throughout all 50 states and the District of Columbia are eligible for the Fund’s programs to provide financial and technical assistance to meet the needs of businesses, homebuyers, community developers, and investors in distressed communities. In addition, the Fund allocates the New Markets Tax Credit to more than 5,000 eligible investment vehicles in low-income communities (LICs).

This report begins by describing the Fund’s history, current appropriations, and each of its programs. A description of the Fund’s process of certifying certain financial institutions to be eligible for the Fund’s program awards follows. The next section provides an overview of each program’s purpose, use of award proceeds, eligibility criteria, and relevant issues for Congress.

The final section analyzes four policy considerations of congressional interest, regarding the Fund and the effective use of federal resources to promote economic development. First, it analyzes the debate on targeting development assistance toward particular geographic areas or low-income individuals generally. Prior research indicates that geographically targeted assistance, like the Fund’s programs, may increase economic activity in the targeted place or area. However, this increase may be due to a shift in activity from an area not eligible for assistance.

Second, it analyzes the debate over targeting economic development policies toward labor or capital. The Fund’s programs primarily rely on the latter, such as encouraging lending to small businesses, rather than targeting labor, such as wage subsidies. Research indicates the benefits of policies that reduce capital costs in a targeted place may not be passed on to local laborers, in the form of higher wages or increased employment.

Third, it examines whether the Fund plays a unique role in promoting economic development, or if it duplicates, complements, or competes with the goals and activities of other federal, state, and local programs. Although CDFIs are eligible for other federal assistance programs and other agencies have a similar mission as the Fund, the Fund’s programs have a particular emphasis on encouraging private investment and building the capacity of private financial entities to enhance local economic development

Fourth, it examines assessments of the Fund’s management. Some argue that the Fund’s programs are not managed in an effective manner and are not held to appropriate performance measures. Others argue that the Fund is fulfilling its mission and achieving its performance measures.


Date of Report: April 29, 2013
Number of Pages: 32
Order Number: R42770
Price: $29.95

To Order:

R42770.pdf  to use the SECURE SHOPPING CART

e-mail congress@pennyhill.com

Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

The Fair Labor Standards Act (FLSA): An Overview

Gerald Mayer
Analyst in Labor Policy

Benjamin Collins
Analyst in Labor Policy

David H. Bradley
Specialist in Labor Economics

The Fair Labor Standards Act (FLSA) provides workers with minimum wage, overtime pay, and child labor protections. The FLSA covers most, but not all, private and public sector employees. In addition, certain employers and employees are exempt from coverage.

Provisions of the FLSA that are of current interest to Congress include the basic minimum wage, subminimum wage rates, exemptions from overtime and the minimum wage for persons who provide companionship services, the exemption for employees in computer-related occupations, compensatory time (“comp time”) in lieu of overtime pay, and break time for nursing mothers. 

Basic Minimum Wage 

• The FLSA requires employers to pay covered, nonexempt employees at least the minimum wage. In 2007, the basic minimum wage was raised, in steps, from $5.15 to $7.25 an hour. The basic minimum wage was raised to $7.25 an hour effective July 24, 2009. As of January 1, 2013, 19 states and the District of Columbia have minimum wage rates that are higher than the federal minimum wage rate. 
• Basic minimum wage rates in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) are lower than in the continental United States. In 2007, Congress passed the Fair Minimum Wage Act of 2007 (P.L. 110- 28), which mandated annual increases of $0.50 an hour in the minimum wages of American Samoa and CNMI. In 2010, Congress temporarily suspended these increases. The minimum wage in CNMI increased by $0.50 an hour to $5.55 on September 30, 2012. In July 2012, Congress delayed the increases in American Samoa. The next minimum wage increases in American Samoa are scheduled for September 30, 2015. 

Subminimum Wage Rates 

• Tipped employees may be paid less than the basic minimum wage, but their cash wage plus tips must equal at least the basic minimum wage of $7.25. Employers may pay tipped workers $2.13 an hour in cash wages, provided the employees receive at least $5.12 an hour in tips. The latter amount is called a “tip credit.” 
• Employers may pay special minimum wages (SMWs) to workers with disabilities. The purpose of the SMWs is to provide persons with disabilities the opportunity to work. 

Overtime 

• The FLSA requires employers to pay at least time-and-a-half to covered, nonexempt employees who work more than 40 hours in a week at a given job. 
• The FLSA allows covered, nonexempt state and local government employees to receive compensatory time off (comp time) for hours worked over 40 in a workweek. Comp time is time off with pay in lieu of overtime pay.

Exemptions 

• The FLSA exempts certain employers and employees from the minimum wage, overtime pay, or child labor standards of the act. 
• Certain employees in computer-related occupations are exempt from both the minimum wage and overtime standards of the FLSA if they meet an hourly wage or weekly salary test and a job duties test. Domestic service workers who provide companionship services in private homes are exempt from both the minimum wage and overtime requirements of the FLSA. Under regulations proposed by the U.S. Department of Labor (DOL), minimum wage and overtime coverage would be extended to companions employed by a third party. Overtime pay would be extended to live-in domestic service workers employed by a third party.

Date of Report: May 3, 2013
Number of Pages: 27
Order Number: R42713
Price: $29.95

To Order:

R42713.pdf  to use the SECURE SHOPPING CART

e-mail congress@pennyhill.com

Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

The Chained Consumer Price Index: What Is It and Would It Be Appropriate for Cost-of-Living Adjustments?

Julie M. Whittaker
Specialist in Income Security

The U.S. Bureau of Labor Statistics (BLS) publishes two important measures of inflation: the Consumer Price Index for all Urban Consumers (CPI-U) and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). (Hereinafter in this report, the CPI-W and CPI-U will be referred to collectively as the standard CPI.) The standard CPI might seem like just another economic indicator, but it is a powerful policy lever. Because the CPI-W is used to calculate annual cost-of-living adjustments (COLAs) to Social Security retirement benefits and the CPI-U is used to calculate annual inflation adjustments to personal income tax brackets, for example, changing the basis of the adjustments could substantially affect outlays and revenues.

Since August 2002, BLS has published a supplemental measure known as the Chained Consumer Price Index for all Urban Consumers (C-CPI-U). The aim of the C-CPI-U is to produce a measure of change in consumer prices that is free of substitution bias. One of the difficulties in estimating cost-of-living changes is that consumers often alter their buying patterns in response to changing relative prices. In other words, consumers tend to buy more of the goods and services whose prices are rising slower than average and fewer of the goods and services whose prices are rising faster than average. Substitution is believed to insulate consumers from the full effect of rising prices on maintaining their standard of living. Because the CPI-W and CPI-U do not entirely account for substitution, they overstate the impact of inflation on consumer well-being.

As a result of better reflecting consumer substitution, the C-CPI-U has typically increased to a lesser extent than either the CPI-U or CPI-W. This relationship has prompted calls for switching to the C-CPI-U when calculating automatic adjustments to inflation-indexed federal programs and individual tax provisions to slow growth in the budget deficit. The 2010 “Simpson-Bowles” report recommended government-wide replacement of the CPI-W and CPI-U with the chained CPI, for example. In April 2013, a modified version of the Chained CPI-U proposal was included in President Obama’s Fiscal Year 2014 Budget.

The CPI-W and CPI-U are not final upon being issued, making them attractive for use in calculating cost-of-living adjustments. In comparison, the C-CPI-U is subject to two revisions after its first release. If the two indexes were replaced by the C-CPI-U, cost-of-living adjustments would either have to wait until the final number was available or rely on preliminary estimates that could change up to two years after the fact.

This report provides technical and logistical information on how the C-CPI-U is constructed and reported by the BLS. For information on programs indexed to the CPI, see CRS Report R42000, Inflation-Indexing Elements in Federal Entitlement Programs, coordinated by Dawn Nuschler. For information on how Social Security benefits could be affected by using the Chained CPI-U to compute annual COLAs, see CRS Report R42086, Using a Different Cost-of-Living Measure for Social Security Beneficiaries: Some Policy Considerations, by Christine Scott.


Date of Report: May 8, 2013
Number of Pages: 15
Order Number: RL32293
Price: $29.95

To Order:

RL32293.pdf  to use the SECURE SHOPPING CART

e-mail congress@pennyhill.com

Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Unemployment Compensation (UC) and the Unemployment Trust Fund (UTF): Funding UC Benefits

Julie M. Whittaker
Specialist in Income Security

This report provides a summary of how Unemployment Compensation (UC) benefits are funded through the Unemployment Trust Fund (UTF). The UTF in the U.S. Treasury is designated as a trust fund for federal accounting purposes. Although the UTF is a single trust fund, it has 59 accounts: the Employment Security Administration Account (ESAA), the Extended Unemployment Compensation Account (EUCA), the Federal Unemployment Account (FUA), 53 state accounts, the Federal Employees Compensation Account (FECA), and two accounts related to the Railroad Retirement Board.

Federal unemployment taxes are credited to the ESAA; each state’s unemployment taxes are credited to the state’s unemployment account. Federal taxes pay for administration grants to the states. State unemployment taxes are dedicated to pay for regular UC benefits. The extended benefits (EB) program is typically funded 50% by the federal government and 50% by the states, but the 2009 stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 Section 2005, as amended) temporarily provides for 100% federal funding of EB through December 31, 2013. The Emergency Unemployment Compensation (EUC08) benefit was funded from the EUCA until P.L. 111-5 changed the source to the general fund of the Treasury.


Date of Report: April 24, 2013
Number of Pages: 10
Order Number: RS22077
Price: $29.95

To Order:

RS22077.pdf  to use the SECURE SHOPPING CART

e-mail congress@pennyhill.com

Phone 301-253-0881

For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.