Jane G. Gravelle
Senior Specialist in Economic Policy
The President and leading Members of Congress have stated that tax reform is a major policy objective for the 113th Congress. Some Members have said that 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 was 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 tax 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 were proposed in H.R. 25 and S. 13, Fair Tax Act of 2011; H.R. 99, Fair and Simple Tax Act of 2011; H.R. 8, the Job Protection and Recession Prevention Act of 2012; 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; H.R. 6169, the Pathway to Job Creation through a Simpler, Fairer Tax Code Act of 2012; and S. 820, the Simplified, Manageable, and Responsible Tax Act. H.R. 25 has been introduced in the 113th Congress. 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, the 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 simplicity. In February 2012, the President presented his outline for corporate reform, The President’s Framework for Business Tax Reform.
Tax reforms often include broadening the tax base by eliminating or trimming tax expenditures. While individual tax expenditures are large relative to individual income tax revenues— potentially gaining around $1 trillion per year, or permitting reductions of over 40% in tax rates— many of these provisions may prove difficult to change because they are widely used and popular, are difficult to address administratively, or may be desirable provisions. Corporate tax reform is generally directed at a revenue-neutral change, but tax expenditures are considerably smaller in absolute terms and relative to the base, permitting tax rate reductions of less than 20%. As with individual tax expenditures, many of these provisions would be difficult to eliminate or reduce. There is special interest in revising the tax treatment of foreign source income of corporations.
Date of Report: January 15, 2013
Number of Pages: 20
Order Number: R41591
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