The Congressional Research Service in an April 20 report examined tax reform proposals in the 112th Congress, including companion bills H.R. 25 and S. 13, the Fair Tax Act of 2011, which would seek to replace the individual income tax, the corporate income tax, and all payroll taxes with a 23 percent national retail sales tax.
Tax
Reform: An Overview of Proposals in the 112th Congress
James M. Bickley
Specialist in Public Finance
April 20, 2011
Congressional Research Service
7-5700
www.crs.gov
R41591
Summary
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 (the "Commission") 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; and H.R. 1040, the Freedom Flat Tax Act. On April 13,
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.
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 policy proposals.
Contents
Introduction
Fundamental Tax Reform Options
Base-Broadening
New Tax
Broad-Based
Consumption Tax
Environmental Tax
Framework of Evaluation
Equity
Efficiency
Simplicity
Other Tax Reform Issues
Alternative Minimum Tax for Individuals
Business Taxation
International Taxation
Fundamental Tax Reform Legislation in the 112th Congress
Representative David Dreier's Proposal
Representative Rob Woodall/Senator Saxby
Chambliss Proposal
Representative Chaka Fattah's Proposal
Senator Ron Wyden's Proposal
Representative Michael C. Burgess's
Proposal
Other Legislation in the 112th Congress
Relevant to
Fundamental Tax Reform
H.R. 462. (Sponsor: Representative Bob Goodlatte)
H.Con.Res. 34. (Sponsor: Representative Paul Ryan)
President Obama's Fiscal Reform Proposal
Contacts
Author Contact Information
Introduction
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 over the existing tax system.1 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."2 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.
In December 2010, The National
Commission on Fiscal Responsibility and Reform (the "Commission")
issued a report titled The Moment of Truth, which proposed extensive
broadening of both the individual income tax base and the corporate income tax
base by eliminating all business tax expenditures and almost all individual tax
expenditures.3 Marginal individual and corporate income tax rates
would be reduced, and the individual alternative minimum tax would be
abolished. The taxation of foreign-source income would be changed by moving to
a territorial system.4 On November 17, 2010,
the Debt Reduction Task Force of the Bipartisan Policy Center issued a report
titled Restoring America's Future.5 This report also
recommended that individual and corporate income tax bases be broadened by
reducing or eliminating most tax expenditures. Marginal individual and
corporate income tax rates would be lowered, and the individual alternative
minimum tax would be eliminated. In addition, this report recommended that a
6.5% value-added tax be levied. The recommendations of these two reports may
influence the tax reform debate in the 112th Congress.
In the 112th Congress,
Members of Congress have introduced numerous bills containing incremental or
marginal adjustments in the tax code in an attempt to redistribute income,
reallocate resources, change individual behavior, etc. Proposed incremental or
small tax adjustments are considered tax changes.6 In contrast, fundamental
tax reform concerns a major proposed overhaul of the U.S. tax system, which
affects the entire tax system or a major component of the system.
In the 112th Congress,
bills proposing fundamental tax reform have been introduced. Two companion bills,
H.R. 25 (introduced by Representative Rob Woodall) and S. 13 (introduced by
Senator Saxby Chambliss), Fair Tax Act of 2011, would replace the
individual income tax, the corporate income tax, all payroll taxes, the
self-employment tax, and the estate and gift taxes with a 23% (tax-inclusive)
national retail sales tax. Representative David Dreier introduced H.R. 99, Fair
and Simple Tax Act of 2011, which would establish an alternative
determination of tax liability for individuals. Representative Michael Burgess
introduced H.R. 1040, Freedom Flat Tax Act, which would authorize an
individual or a person engaged in business activity to
make an irrevocable election to be subject to a flat tax (in lieu of the
existing tax provisions). Representative Chaka Fattah introduced H.R. 1125, Debt
Free America Act, which would impose a transaction fee of 1% on the entire
amount of specified intermediate and final transactions. Revenue raised from
this fee would be sufficient to eliminate the national debt during a 10-year
period and phase out the income tax on individuals. On April 13, 2011,
President Obama presented his Framework for Shared Prosperity and Shared
Fiscal Responsibility, which proposes to reduce the deficit by $4 trillion
over 12 years or less. The President's plan includes comprehensive tax reform.
On April 14, 2011, Representative Paul Ryan introduced H.Con.Res.
34. On April 15, 2011, the House passed this FY2012 budget resolution, which
includes fundamental changes in the U.S. tax system.
This report primarily covers
fundamental tax reform because 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.7
Fundamental Tax Reform Options
Two broad fundamental tax reform
categories for addressing the severe deficit problem are base-broadening and
levying a new tax. Some of the revenue from base-broadening and a new tax could
be used to reduce marginal tax rates.
Base-Broadening
Some members of Congress have
expressed concern about the large number and high cost of tax expenditures.8
Examples of tax expenditures are the deduction for mortgage interest on
owner-occupied residences and the deduction for property taxes on
owner-occupied residences. Many of these tax expenditures are seen as targets
to be reduced or eliminated. Congress may want to consider whether the benefits
of a particular tax expenditure exceed the costs of
that tax expenditure. Arguably, the current tax reform debate deals with
broadening the individual and corporate income tax bases and lowering marginal
tax rates.
New Tax
Revenue from a new tax would allow
the retention of more tax expenditures and lower reductions in other tax
expenditures. Furthermore, revenue from a new tax could finance a larger
reduction in marginal income tax rates and permit a smaller reduction in
federal spending. Broad categories have received the most attention:
consumption and environmental taxes.
Broad-Based Consumption Tax
In recent Congresses, three major
types of broad-based consumption taxes have been included in congressional tax
proposals: the value-added tax (VAT), the retail sales tax, and the flat tax.
These possible broad-based consumption taxes have the potential of a robust revenue
yield.
Value-Added Tax
A value-added tax is a tax on the
value that a firm adds to a product at each stage of production. The value the
firm adds is the difference between a firm's sales and a firm's purchases of
inputs from other firms. The VAT is collected by each firm at every stage of
production.
There are three alternative methods
of calculating VAT: the credit method, the subtraction method, and the addition
method. Under the credit method, the firm calculates the VAT to be remitted to
the government by a two-step process. First, the firm multiplies its taxable
sales by the tax rate to calculate VAT collected on sales. Second, the firm
credits VAT paid on inputs against VAT collected on sales and remits this
difference to the government. The firm calculates its VAT liability before
setting its prices to fully shift the VAT to the buyer. Under the
credit-invoice method, a type of credit method, the firm is required to show
VAT separately on all sales invoices and to calculate the VAT credit on inputs
by adding all VAT shown on purchase invoices.
Under the subtraction method, the
firm calculates its value added by subtracting its cost of taxed inputs from
its sales. Next, the firm determines its VAT liability by multiplying its value
added by the VAT rate. Under the addition method, the firm calculates its value
added by adding all payments for untaxed inputs (e.g., wages and profits).
Next, the firm multiplies its value added by the VAT rate to calculate VAT to
be remitted to the government.
All developed nations, except Japan,
use the credit-invoice method. Japan uses the subtraction method.
Retail Sales Tax
A retail sales tax is a consumption
tax levied only at a single stage of production, the retail stage. The retailer
collects a specific percentage markup in the retail price of a good or service,
which is then remitted to the government.9 As of February 1, 2010,
the Tax Foundation reports that 45 states had retail sales taxes.10
Flat Tax
A flat tax could be levied based on
the proposal formulated by Robert E. Hall and Alvin Rabushka
of the Hoover Institution.11 Their proposal would have two
components: a wage tax and a cash-flow tax on businesses. (A wage tax is a tax
only on salaries and wages: a cash-flow tax is generally a tax on gross
receipts minus all outlays.) It is essentially a modified VAT, with wages and
pensions subtracted from the VAT base and taxed at the individual level. Under
a standard VAT, a firm would not subtract its wage and pension contributions
when calculating its tax base. Under the flat tax, some wage income would not
be included in the tax base because of exemptions. Under a standard VAT, all
wage income would be included in the tax base.
Environmental Tax
Environmental taxes have been
proposed to reduce pollution and raise revenue. The most frequently discussed
energy tax is a carbon tax that would be levied on the volume of carbon
emitted. This tax is frequently recommended by economists, but the Obama
Administration is attempting to implement a cap and trade system. Another
alternative energy tax would be higher gasoline taxes.
Framework of Evaluation
In evaluating any change in tax
policy, the prevailing framework is to analyze the tax policy for equity,
efficiency, and simplicity. Tradeoffs may exist between these three objectives.
For example, if greater income equality is desired, this may conflict with the
goal of economic efficiency.
Equity
Economic theory maintains that it is
not possible to make interpersonal comparisons of utility. Hence, whether a
change in the distribution of income, with gainers and losers, is an
improvement in the national welfare is a value judgment. The effects on
different groups, however, can be measured and debated. Thus, the following
questions can be examined.
How will different income groups be
affected annually and over their lifetimes? Will taxpayers in similar
circumstances pay approximately the same amount of taxes? What will be the
effect on taxpayers in different age groups? Will there be distributional
effects by region of the country? How will minority groups be affected? What
will be the tax incidence on families versus single taxpayers?
Efficiency
Tax policy should promote economic
efficiency; that is, a tax change should be as neutral as possible by
minimizing economic distortions.12 Low marginal tax rates tend to
lessen distortions.
Many efficiency questions concern
household decisions. What will be the effect of a tax change on households
decisions to save versus consume? Will households' choices of leisure versus
work be affected? Will household decisions about the composition of goods and
services consumed be affected?
Other efficiency questions concern
firms' decisions. What will be the effect on firms' decisions concerning the
method of financing (debt or equity), choice among inputs, type of business
organization (corporation, partnership, of sole proprietorship), and
composition of output?
Simplicity
The greater the simplicity of the
tax system, the lower will be the administrative and compliance costs. Thus,
tax policy should eliminate any unnecessary complexity and promote
transparency. Numerous questions concerning simplicity arise; among them are the
following: How will a tax change affect federal administrative costs? Will the
administrative costs of state and local governments change? How will compliance
costs of households be affected? Will business compliance costs change?
Other Tax Reform Issues
Alternative Minimum Tax for
Individuals
In 1969, Congress enacted the
individual alternative minimum tax (AMT) to make sure that everyone paid at
least a minimum of income taxes and still preserve the economic and social
incentives in the tax code. The combined effects of inflation and the
legislative reductions in the regular income tax have expanded the number of
taxpayers subject to the AMT. Consequently, Congress has passed temporary
increases in the basic exemption for the AMT to limit the number of taxpayers
subject to the AMT. Most recently, an 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. Some
proponents of tax reform argue that the AMT should be repealed or a permanent
patch should be passed, but either reform would require a major increase in
taxes to offset the large revenue loss.13
Business Taxation
Federal taxes on business income
have differential effects.14 For example, non-corporate income is
taxed less than corporate income, debt financing is an expense but equity
financing is not, and depreciation rules favor machines and equipment over
structures and inventory. These differential effects distort investment decisions, lessen economic efficiency, and lower economic
welfare. Several options have been proposed to reform federal business
taxation.15
First, comprehensive taxation of
corporate income and lower tax rates would eliminate or reduce most major
distortions. In the 112th Congress, 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.
Second, corporate tax integration
would eliminate the double taxation of corporate income by altering the general
system of taxing corporate-source income. Integration could apply to both
retained earnings and dividends and thus all corporate profits ("full
integration"), or the treatment only of earnings that are distributed
("partial integration").
Third, a broad-based consumption tax
could be levied that would replace individual and corporate income taxes.
International Taxation
The rapid growth of the foreign
trade sector in the U.S. economy and the expansion of international flows of
capital have increased the importance of appropriate U.S. international tax
practices.16 The two alternative principles on which countries can
base their international tax systems are residence and territory.
Under a residence system, a country
taxes its own residents (or domestically chartered "resident"
corporations) on their worldwide income, regardless of its geographic source.
Under a territorial system, a country taxes only income that is earned within
its own borders. Currently, the United States has a hybrid system with elements
of both a residence system and a territorial system. The United States taxes
both income of foreign firms earned within its borders as well as the worldwide
income of its U.S.-chartered firms. U.S. taxes, however, do not apply to the
foreign income of U.S.-owned corporations chartered abroad. A U.S. firm can
indefinitely defer U.S. tax on its foreign income if it conducts its foreign
operations through a foreign-chartered subsidiary corporation; U.S. taxes do
not apply as long as the foreign subsidiary's income is reinvested overseas.
With some exceptions, U.S. taxes apply only when the income is remitted to the
U.S.-resident parent as dividends or other intra-firm payments. While the
United States taxes worldwide income on either a current or deferred basis, it
also allows a foreign tax credit for foreign taxes paid on a dollar-for-dollar
basis against U.S. taxes in order to avoid the double-taxation of income.17
The current system is complex and
difficult to administer. Furthermore, critics argue that the current system is
not sufficiently neutral, which results in economic inefficiency. The system
provides a tax incentive to invest in countries with low tax rates and a
disincentive to invest in countries with high tax rates. Proposals to reform
the U.S. international tax system include the replacement of the current hybrid
system with either a territorial tax system or a residence-based system.18
Fundamental Tax Reform Legislation
in the 112th Congress
In the 112th Congress,
three bills for fundamental tax reform have been introduced.
Representative David Dreier's
Proposal
H.R.
99. The Fair and Simple Tax Act of
2011 was introduced on January 5, 2011, and referred to the House Ways and
Means Committee. This bill would establish an alternative determination of tax
liability for individuals. A "simplified taxable income" would be
taxed at the rates of 10% on the first $40,000, 15% on the income over $40,000
but under $150,000, and 30% on the income over $150,000.
Simplified taxable income would equal gross income less the sum of deductions
for personal exemptions, the deduction allowed for the acquisition of
indebtedness with respect to the principal residence, the deduction allowed for
state and local income taxes, the deduction allowed for charitable giving, and
the deduction allowed for medical expenses. The estate and gift taxes would be
repealed. The alternative minimum tax exemption amounts would be indexed for
inflation. The maximum corporate income tax rate would be reduced to 25%. The
15% rate on dividends and capital gains of individuals would be reduced to 10%.
The basis for assets for purposes of determining capital gain or loss would be
indexed for inflation. This bill would create tax-free accounts for retirement
savings, lifetime savings, and lifetime skills. Examples of qualified life
skills include assessments of skill levels, development of an individual
employment plan, career planning, occupational skills training, on-the-job
training, and entrepreneurial training. This bill would repeal the adjusted
gross income threshold in the medical care deduction for individuals under age
65 who have no employer health coverage. This bill would make the research
credit permanent. This bill would repeal Title IX of the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA) relating to sunset of
provisions. This bill would repeal Section 107 of the Jobs and Growth Tax
Relief Reconciliation Act of 2003 relating to application of EGTRRA sunset to this
title.
Representative Rob Woodall/Senator
Saxby Chambliss Proposal
H.R.
25. The Fair Tax Act of 2011, was
introduced on January 5, 2011, by Representative Rob Woodall and referred to
the Committee on Ways and Means. A companion bill, S. 13, the Fair
Tax Act of 2011, was introduced on January 25, 2011, by Senator Saxby
Chambliss and referred to the Senate Finance Committee. This proposal would
repeal the individual income tax, the corporate income tax, all payroll taxes,
the self-employment tax, and the estate and gift taxes and levy a 23%
(tax-inclusive) national retail sales tax as a replacement. The tax-inclusive
retail sales tax would equal 23% of the sum of the sales price of an item and
the amount of the retail sales tax. Every family would receive a rebate of the
sales tax on spending amounts up to the federal poverty level (plus an extra
amount to prevent any marriage penalty). The Social Security Administration
would provide a monthly sales tax rebate to registered qualified families. The
23% national retail sales would not be levied on exports. The sales tax would
be separately stated and charged. Social Security and Medicare benefits would
remain the same with payroll tax revenue replaced by some of the revenue from
the retail sales tax. States could elect to collect the national retail sales
tax on behalf of the federal government in exchange for a fee. Taxpayer rights
provisions are incorporated into the act. The sales tax would sunset at the end
of a seven-year period beginning on the enactment of this act if the Sixteenth
Amendment is not repealed. This amendment provided Congress with the
"power to lay and collect taxes on incomes. . . ."
Representative Chaka Fattah's
Proposal
H.R.
1125. The Debt Free America Act
was introduced on March 16, 2011, and referred to the Committee on Ways and
Means and three other committees. This act would impose a transaction fee of 1%
on the entire amount of specified intermediate and final transactions. Revenue
raised from this fee would be sufficient to eliminate the national debt during
a 10-year period and phase out the income tax on individuals. The term specified
transaction "means any transaction that uses a payment instrument,
including any check, cash, credit card, transfer of
stock, bonds, or other financial instrument." The fees would be collected
by the seller or financial institution servicing the transaction and would be
paid to the U.S. Treasury. The bill would establish a Bipartisan Task Force for
Responsible Fiscal Action, which would identify factors affecting the long-term
fiscal imbalance, analyze potential courses of action, and provide
recommendations and legislative language to improve the long-term fiscal
imbalance.
Senator Ron Wyden's Proposal
S. 727. The Bipartisan Tax Fairness and Simplification Act of
2011 was introduced on April 5, 2011, and referred to the Senate Finance
Committee. This act was also sponsored by Senator Dan Coats and is often
referred to as the Wyden-Coats proposal. This proposal would reform the current
income tax base rather than changing to a consumption base. This bill has three
stated purposes: (1) to make the federal individual income tax system simpler,
fairer, and more transparent; (2) to make the federal corporate income tax rate
a flat 24%, repeal the corporate alternative minimum tax, and eliminate special
tax preferences that favor particular types of businesses or activities; and
(3) to partially offset the federal budget deficit through the increased fiscal
responsibility resulting from these reforms.
The progressive individual income
tax would have three rates: 15%, 25%, and 35%. The individual alternative
minimum tax would be eliminated. The standard deduction would almost triple.
While most deductions would be eliminated, the bill would include deductions
for mortgage interest and charitable contributions. The bill would permanently
extend the enhancements of the child tax credit, the earned income tax credit,
and the dependent care credit. The bill would consolidate the three existing
types of IRAs into a new retirement savings account, and a new lifetime savings
account. A married couple would be able to contribute up to $14,000 per year to
tax-favored retirement and savings accounts. The corporate tax rate would be
24% of taxable income. The corporate tax base would be broadened by the
elimination of numerous tax credits, deductions, and exclusions from income.
The growth of small businesses would be encouraged by allowing businesses with
gross annual receipts of up to $1 million to permanently expense all equipment
and inventory costs in a single year. The bill includes numerous provisions to
improve tax compliance.
Representative Michael C. Burgess's
Proposal
H.R.
1040. The Freedom Flat Tax Act, was introduced on March 11,
2011, by Representative Burgess and referred to the House Committee on Ways and
Means and the House Committee on Rules.
This proposal would authorize an
individual or a person engaged in business activity to make an irrevocable
election to be subject to a flat tax (in lieu of the existing tax provisions).
The flat tax was based on the concepts of the Hall-Rabushka
flat tax proposal. Each act would also repeal the estate and gift taxes.
For individuals not engaged in
business activity who select the flat tax, their initial tax rate would be 19%,
but after two years this rate would decline to 17%. The individual flat tax
would be levied on all wages, retirement distributions, and unemployment
compensation.
The flat tax would have
"standard deductions" that would equal the sum of the "basic
standard deduction" and the "additional standard deduction."
The "basic standard
deduction" would depend on filing status:
·
$30,320 for a married couple filing
jointly or a surviving spouse
·
$19,350 for a single head of
household
·
$15,160 for a single person or a
married person filing a separate return
The "additional standard deduction" would be an amount equal to
$6,530 for each dependent of the taxpayer. All deductions would be indexed for
inflation using the consumer price index (CPI).
For individuals engaged in business
activity who select the flat tax, their initial tax rate would be 19%
(declining to 17% when the tax was fully phased in two years after enactment)
on the difference between the gross revenue of the business and the sum of its
purchases from other firms, wage payments, and pension contributions.
Any congressional action that raises
the flat tax rate or reduces the amount of the standard deduction would require
a three-fifths (supermajority) vote in both the Senate and the House of
Representatives. The effective date of the flat tax would be calendar year
2012.
Other Legislation in the 112th
Congress Relevant to Fundamental Tax Reform
H.R.
462. (Sponsor: Representative Bob Goodlatte).
The Tax Code Termination Act
was introduced on January 26, 2011, and referred to the House Committee on Ways
and Means. After December 31, 2015, this bill proposes to terminate the tax
code except for self-employment taxes, Federal Insurance Contributions Act
taxes, and Railroad Retirement taxes. This proposal declares that any new
federal tax system should be a simple and fair system that (1) applies a low
rate to all Americans, (2) provides tax relief for working Americans, (3)
protects the rights of taxpayers and reduces tax collection abuses, (4)
eliminates the bias against savings and investment, (5) promotes economic
growth and job creation, and (6) does not penalize marriage or families. This
bill would require that the new federal tax system be approved by Congress not
later than July 4, 2015.
H.Con.Res. 34.
(Sponsor: Representative Paul Ryan).
House Budget Chairman Paul Ryan
introduced this continuing resolution on April 14, 2011, "establishing the
budget for the United States Government for fiscal year 2012 and setting forth
appropriate budgetary levels for fiscal years 2013 through 2021." On April
15, 2011, this bill was passed by the House. This FY2012 budget resolution
proposes to reduce future deficits and slow the growth of the national debt.
Major reforms in the tax system are proposed. The summary regarding taxes
states that the budget resolution
·
keeps taxes low so the economy can
grow, eliminates roughly $800 billion in tax increases imposed by the
President's health care law, and prevents the $1.5 trillion tax increase called
for in the President's budget; and
·
calls for a simpler, less burdensome
tax code for households and small businesses, lowers tax rates for individuals,
businesses, and families, sets top rates for individuals and businesses at 25%,
and improves incentives for growth, savings, and investment.19
President Obama's Fiscal Reform Proposal
On April 13, 2011, President Obama
gave a speech in which he presented his Framework for Shared Prosperity and
Shared Fiscal Responsibility. The President set a goal of reducing the
deficit by $4 trillion in 12 years or less.20 Under
tax reform, the fact sheet for his proposal states
The President is calling on Congress to undertake comprehensive tax reform that
produces a system which is fairer, has fewer loopholes, less complexity, and is
not rigged in favor of those who can afford lawyers and accountants to game it.
He believes we cannot afford to make
our deficit problem worse by extending the Bush tax cuts for the wealthiest
Americans.
He also supports efforts to build on
the Fiscal Commission's goal of reducing tax expenditures so that there is
enough savings to both lower rates and lower the deficit. Reform should be
designed to ask more of those who can afford it while protecting the middle
class and promoting economic growth.
In addition, as he explained in the
State of the Union, the President is continuing his effort to reform our
outdated corporate tax code to enhance our economic competitiveness and encourage
investment in the United States. By eliminating loopholes, reducing distortions
and leveling the playing field in our corporate tax code, we can use the
savings to lower the corporate tax rate for the first time in 25 years without
adding to the deficit.21
Author Contact Information
James M. Bickley
Specialist in Public Finance
jbickley@crs.loc.gov, 7-7794
FOOTNOTES