James M. Bickley
Specialist in Public Finance
The President and leading members of Congress have stated that fundamental tax reform is a major policy objective for the 112th Congress. These policymakers 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. Tax expenditures are revenue losses resulting from federal tax provisions that grant special tax relief designed to encourage certain kinds of behavior by taxpayers or to aid taxpayers in special circumstances. If tax expenditures are reduced substantially or a consumption tax is levied or both, then the marginal income tax rates could be reduced. 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 (the “Commission”) and the Debt Reduction Task Force of the Bipartisan Policy Center. The proposals in these reports may influence the debate over fundamental tax reform. Both proposals recommended the elimination of most tax expenditures and the lowering of marginal corporate and individual income tax rates. In addition, the Debt Reduction Task Force recommended the levying of a 6.5% value-added tax. In the 112th Congress, fundamental tax reforms are proposed in two companion bills, H.R. 25 and S. 13, the Fair Tax Act of 2011, and H.R. 99, the Fair and Simple Tax Act of 2011. An evaluation of these and other proposals would consider the effects on equity, efficiency, and simplicity.
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.
Date of Report: February 23, 2011
Number of Pages: 12
Order Number: R41591
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. 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.
Specialist in Public Finance
The President and leading members of Congress have stated that fundamental tax reform is a major policy objective for the 112th Congress. These policymakers 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. Tax expenditures are revenue losses resulting from federal tax provisions that grant special tax relief designed to encourage certain kinds of behavior by taxpayers or to aid taxpayers in special circumstances. If tax expenditures are reduced substantially or a consumption tax is levied or both, then the marginal income tax rates could be reduced. 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 (the “Commission”) and the Debt Reduction Task Force of the Bipartisan Policy Center. The proposals in these reports may influence the debate over fundamental tax reform. Both proposals recommended the elimination of most tax expenditures and the lowering of marginal corporate and individual income tax rates. In addition, the Debt Reduction Task Force recommended the levying of a 6.5% value-added tax. In the 112th Congress, fundamental tax reforms are proposed in two companion bills, H.R. 25 and S. 13, the Fair Tax Act of 2011, and H.R. 99, the Fair and Simple Tax Act of 2011. An evaluation of these and other proposals would consider the effects on equity, efficiency, and simplicity.
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.
Date of Report: February 23, 2011
Number of Pages: 12
Order Number: R41591
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. 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.
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