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Congressional Research Service: Tax Reform: An Overview of Proposals in the 112th Congress

Author: James Bickley, Specialist in Public Finance, Congressional Research Service
December 9, 2011

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James M. Bickley examines tax reform legislation and issues surrounding it.

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. 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. On April 15, 2011, the House passed this FY 2012 budget resolution, which includes fundamental changes in the U.S. tax system. An evaluation of these and other proposals would consider the effects on equity, efficiency, and simplicity.

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