President and leading Members of Congress have stated that fundamental tax
reform is a major policy objective for the 112th Congress. Some Members
have said that fundamental tax reform is needed in order to raise a large
amount of additional revenue, which is necessary to reduce high forecast
budget deficits and the sharply rising national debt. Congressional interest has
been expressed in both a major overhaul of the U.S. tax system and the
feasibility of levying a consumption tax. Some proponents of reform argue
that the tax base should be broadened by reducing or eliminating many tax
expenditures. An alternative to increasing tax revenues is cutting
spending. Thus, Members are faced with considering the best mix of tax
increases and spending cuts in order to reduce deficits and slow the
growth of the national debt.
Proposals for fundamental reform have been made in reports by the National
Commission on Fiscal Responsibility and Reform and the Debt Reduction Task
Force of the Bipartisan Policy Center. In the 112th Congress, fundamental
tax reforms are proposed in two companion bills, H.R. 25 and S. 13, Fair
Tax Act of 2011; H.R. 99, Fair and Simple Tax Act of 2011; H.R.
1125, the Debt Free America Act; S. 727, the Bipartisan Tax
Fairness and Simplification Act of 2011; H.R. 1040, the Freedom
Flat Tax Act; and S. 820, the Simplified Manageable, and Responsible Tax
Act. On April 13, 2011, President Obama presented his Framework for
Shared Prosperity and Shared Fiscal Responsibility, which includes
fundamental tax reform. On April 14, 2011, Representative Paul Ryan
introduced H.Con.Res. 34, FY2012 budget resolution, which includes fundamental changes
in the U.S. tax system. On March 20, 2012, House Budget Committee Chairman Paul Ryan
released the committee’s Fiscal Year 2013 Budget Resolution, The Path to
Prosperity: A Blueprint for American Renewal. An evaluation of these
proposals would consider the effects on equity, efficiency, and
This report primarily covers fundamental tax reform. CRS reports are available
online concerning the other three categories of tax reform: tax reform
based on the elimination of the individual alternative minimum tax (AMT),
proposals for reforming the corporate income tax, and proposals for
reforming the U.S. taxation of international business.
A temporary individual AMT patch for 2010 and 2011 was included in the Tax
Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010,
which became P.L. 111- 312 on December 17, 2010. The patch increased the
individual AMT exemption amounts. Some proponents of tax reform argue that
the AMT should be repealed or a permanent patch should be passed. The
repeal or passage of a permanent patch of the individual AMT would require a
major increase in taxes to offset the large revenue loss.
Options for reforming the corporate income tax are under consideration. The
concept of lowering the marginal corporate income tax rate and broadening
the corporate income tax base has been advocated by some Members of
Congress. Other options for reform include corporate tax integration and
the replacement of the income tax system with a consumption tax.
The current system of U.S. taxation of international business is complex and
difficult to administer. Furthermore, critics argue that the current
system is not sufficiently neutral, which results in economic
inefficiency. Proposals to reform the system include the replacement of the current
hybrid system with either a territorial tax system or a residence-based system.
This report will be updated in the event of significant legislative activity or
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