Tax Reform Information

The purpose of this web page is to objectively note reports and websites related to tax reform and provide links to further information from members of Congress and others. The focus is on federal tax reform, but there are also links to some state tax reform activities.

Compiled by Professor Annette Nellen

**Visit Professor Nellen's Tax Reform Blog - click here**

Background Information on Tax Reform

• 21st Century Taxation - Professor Nellen's website with a articles on various tax reform issues

• President Bush's Advisory Panel on Federal Tax Reform (panel's website with final report (11/1/05) and testimony)

  • Annette Nellen - Brief overview to tax reform and Panel's proposals - outline + slides

  • Leonard E. Burman and William G. Gale, "A Preliminary Evaluation of the Tax Reform Panel's Report," Tax Notes 12/5/05

• Treasury Department reports on business competitiveness:

  •  Business Taxation and Global Competitiveness (7/23/07)

  • Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century (12/07)

• Legislative proposals (sampling) and hearings of the 110th Congress:

  • A variety of hearing either directly on tax reform or related topics (such as health care reform or small business reform) were held in the 110th Congress. Some of the hearings in the Senate Finance Committee were labeled as being in anticipation of tax reform. So it looks like the topic will get more attention in 2009. Part of the reason for the interest is the expiring 2001 and 2003 tax cuts, AMT problems, the tax gap and international competitiveness.

       Click here for a list with links to key tax reform related hearings of the 111th Congress

       Click here for a list with links to key tax reform related hearings of the 110th Congress.

     

  • Congressional Research Service report on Tax Reform: An Overview of Proposals in the 110th Congress (1/08)

  • H.R. 1040 - Freedom Flat Tax

  • H.R. 25 - Fair Tax Act (national sales tax)

  • H.R. 3818 - the Taxpayer Choice Act of 2007 - repeals the individual AMT and gives taxpayers a choice of filing systems: the current one with its various deductions and credits, or a simplified one with a 2 rate structure and deductions only for personal and dependency exemptions and a standard deduction.  Also see information from the Republican Study Committee.

  • H.R. 473 - "To establish a commission to develop legislation designed to reform tax policy and entitlement benefit programs and ensure a sound fiscal future for the United States, and for other purposes." The commission would be called the Securing America's Future Economy (SAFE) Commission.

  • S. 55 - To repeal the individual AMT starting in 2007. While this might not sound like tax reform, it affects a lot of individuals and will likely require some significant changes to cover the revenue effect or repeal.

    • 1/4/07 press release from Senate Finance Committee

  • S. 96 - "A bill to amend the Internal Revenue Code of 1986 to ensure a fairer and simpler method of taxing controlled foreign corporations of United States shareholders, to treat certain foreign corporations managed and controlled in the United States as domestic corporations, to codify the economic substance doctrine, and to eliminate the top corporate income tax rate, and for other purposes."

• Congressional (old):

  • Our Business Tax System: Objectives, Deficiencies, and Options for Reform (9/26/06)

  • Kick-Off for Tax Reform: Tackling the Tax Code (8/3/06)

  • Hearing on the Impact of International Tax Reform on U.S. Competitiveness (6/22/06)

• Tax Gap Concerns:

  • GAO - Highlights of the Joint Forum on Tax Compliance (6/08)

  • GAO - Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap (2/07)

  • A Closer Look at the Size and Sources of the Tax Gap (7/26/06)

  • Treasury Comprehensive Strategy for Addressing the Tax Gap (9/06)

• Why is major federal tax reform a regular discussion topic? What are the typical goals for tax reform? Click here.

• What is a consumption tax? By "major" federal tax reform, the sponsors generally mean that the federal income tax (and perhaps other federal taxes, such as payroll taxes and estate and gift taxes) would be replaced with a consumption tax. Today in the U.S., consumption taxes are only used by state and local governments - the sales tax. For the answer to the question, what is a consumption tax? - click here.

• Tax Reform in the U.S., by Annette Nellen, July 1999 - overview to current U.S. system, recent reforms, major reform proposals and current tax issues.

• AICPA's Understanding Tax Reform: A Guide to 21st Century Alternatives, 9/05

• Analyzing Tax Proposals:

  • AICPA's Guiding Principles of Good Tax Policy

  • Joint Venture's Tax Principles Workbook (based on the AICPA model above)

  • Comparison of Sets of Principles Commonly Used in Analyzing Tax Proposals (Nellen)

• GAO

  • Value-Added Taxes: Lessons Learned from Other Countries on Compliance Risks, Administrative Costs, Compliance Burden, and Transition (4/08)

  • Understanding the Tax Reform Debate: Background, Criteria and Questions (9/05)

• Congressional Research Service (CRS) reports (or search here for more reports)

  • Tax Reform: An Overview of Proposals in the111th Congress by James M. Bickley 3/5/09)

  • Value-Added Tax: A New Federal Revenue Source, by James M. Bickley (8/22/06)

  • Flat Tax Proposals and Fundamental Tax Reform: An Overview, by James M. Bickley (5/31/06),

  • A Value-Added Tax Contrasted with a National Sales Tax, by James M. Bickley, September 2004

  • The Flat Tax, Value-Added Tax, and National Retail Sales Tax: Overview of the Issues, by Gregg A. Esenwein and Jane G. Gravelle, September 2004

  • Consumption Taxes and the Level and Composition of Saving, by Steven Maguire, January 2001

  • Flat Tax Proposals and Fundamental Tax Reform: An Overview, by James M. Bickley, November 2000.  9/04 update

  • Value-Added Tax as a New Revenue Source, by James M. Bickley, July 2000.

  • Effects of Flat Taxes and Other Proposals on Housing: An Overview, by Jane G. Gravelle, June 1996.

• Joint Committee on Taxation reports on the flat tax and other tax reform proposals:

  • Discussion of Issues Relating To "Flat" Tax Rate Proposals, JCS-7-95, April 3, 1995
  • Description And Analysis Of Proposals To Replace The Federal Income Tax, JCS-18-95, June 5, 1995
  • Selected Materials Relating To The Federal Tax System Under Present Law And Various Alternative Tax Systems, JCS-1-96, March 14, 1996
  • Impact On Small Business Of Replacing The Federal Income Tax, JCS-3-96, April 23, 1996
  • Impact On State And Local Governments And Tax-Exempt Organizations Of Replacing The Federal Income Tax, JSC-4-96, April 30, 1996
  • Impact On International Competitiveness Of Replacing The Federal Income Tax, JCS-5-96, July 17, 1996
  • Impact On Manufacturing, Energy, And Natural Resources Of Replacing The Federal Income Tax, JCS-7-96, July 31, 1996
  • Impact On Individuals And Families Of Replacing The Federal Income Tax, JCS-8-97, April 14, 1997

   

• Congressional Budget Office reports on tax reform:

  • Testimony on the Individual AMT (5/05) - not specifically on tax reform, but provides an example of why some reform is needed

  • Testimony on the Tax Code’s Impact on the Reliability of Revenue Projections (7/22/04)

  • Two Papers on Fundamental Tax Reform (10/97)

  • The Economic Effects of Comprehensive Tax Reform (7/97)

  • Comparing Income and Consumption Tax Bases (7/97)

  • Federal Income Tax Reform: A Review of Two Proposals (10/84)

• AICPA Tax Policy Concepts Statement - helpful in understanding the debate

  • #1 — Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals

  • #2 — Guiding Principles for Tax Simplification

  • #3 — Guiding Principles for Tax Law Transparency

  • #4 — Guiding Principles for Tax Equity and Fairness (2007)

• Tax Foundation

  •   Fundamental Tax Reform: The Experience of OECD Countries, by Jeffrey Owens, OECD (Feb 2005)

• Historical reports

  • Treasury, Blueprints for Basic Tax Reform, January 17, 1977

  • Treasury, Tax Reform for Fairness, Simplicity, and Economic Growth: The Treasury Department Report to the President, Nov. 1984

  • Treasury, The President’s Tax Proposals to the Congress for Fairness, Simplicity, and Growth, May 1985

  • Treasury, Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once, Jan. 1992

  • Treasury, A Recommendation for Integration of the Individual and Corporate Tax Systems, Dec. 1992

   

• Examples of What Some States or State Organizations Have Done to Evaluate Their State Tax System and Possible Reforms:

  • NCSL list of state activities

  • Arizona (2003)

    • Guiding Principles from Arizona's Citizen's Finance Review Commission - and another version

  • California

    • Commission on the 21^st Century Economy - formed by Governor and legislature 10/08

      • Press release on formation

      • Press release on appointment of members

    • Information from the Commission on Tax Policy in the New Economy.       Final report (12/03).

  • Hawaii 

    • 2005-2007

    • Prior years + state tax data

  • Massachusetts - final report of Study Commission on Corporate Taxation (12/07)

  • Report on Michigan's Single Business Tax (which is a subtraction method VAT), July 2002

  • Minnesota - report issued 2/09.  There are some very interesting ideas here, all explained in the context of the need to modernize the tax system; background reports are also very interesting.

    • Professor Nellen blog comment

  • Ohio - significant reform enacted effective July 1, 2005     Reform Committee report. (3/03)

  • Oklahoma (2001)

  • Texas Tax Reform Commission

  • Virginia (2002)    Main page

  • Washington (2002)

  • Wyoming (1999)

  
  

Flat Tax

• H.R. 1040 (110th Congress, Burgess) - Freedom Flat Tax
• H.R. 1040 (109th Congress, Burgess) - similar to the "Armey" flat tax, see below.
• S. 1040 (108th Congress, Shelby) - A flat tax proposal like the ones he and former Congressman Armey have introduced in prior years (based on the Hall-Rabushka model). The rate would be 19% until 2005 when it would be 17%.  It also calls for a 3/5 majority vote for any tax increase or reduction in the standard deduction or change that would reduce federal revenues.
  
  
• S. 907 (108th Congress; Spector) - Like Congressman Armey's flat tax, the one of Senator Spector is modeled after the Hall-Rabushka flat tax. S. 907 calls for a 20% flat tax on earned income of individuals less a standard deduction, deduction for cash contributions (limited to $2,500) and home acquisition mortgage interest (limited to $100,000 of debt). The standard deduction would be $17,500 for married couples filing jointly, $15,000 for head-of-household, and $10,000 for individuals. A dependency deduction of $5,000 per dependent would be included as part of the standard deduction. The standard deduction would be adjusted annually for the effects of inflation. 
  
  All forms of business would be subject to a 20% flat tax on their business taxable income which is "gross active income" less specified deductions. Gross active income excludes investment income. Allowable business deductions are business inputs (cost of goods sold, cost of services provided and reasonable travel and entertainment) compensation paid to employees, and the cost of personal and real property used in the business.  Excess deductions could be carried over to future tax years.
  
  No tax credits are provided. Estate and gift taxes would be repealed.
  
  Per Senator Spector: "This flat tax would enable us to scrap the great majority of the IRS rules, regulations, and instructions and delete most of the 6.9 million words in the Internal Revenue Code. Instead of billions of hours of non-productive time spent in compliance with, or avoidance of, the tax code, taxpayers would spend only the small amount of time necessary to fill out a postcard-sized form. Both business and individual taxpayers would thus find valuable hours freed up to engage in productive business activity or for more time with their families instead of poring over tax tables, schedules, and regulations." [Cong. Record, 4/11/03, S5363]
  
  
• S. 1054 - Amendment 569 (Spector) - calls for a Sense of the Senate resolution that "the Senate Finance Committee and the Joint Economic Committee should undertake a comprehensive analysis of simplification including flat tax proposals, including appropriate hearings and consider legislation providing for a flat tax."
  
  Senator Spector suggests that a 19% flat tax (20% rate if mortgage interest and charitable deductions are allowed) would "expand the economy by an estimated $2 trillion over seven years."
  
  On May 15, 2003, the Senate agreed by a vote of 70-30 to add the above amendment to S. 1054. S. 1054 became a substitute for H.R. 2 which passed in the Senate 51-49 on May 15, 2003.
  
  
• Congressman Armey reintroduced his flat tax proposal (H.R. 1040, 107th Congress) which is based on the Hall-Rabushka flat tax model. Congressman Armey previously introduced this bill in the 103rd, 104th, 105th and 106th Congress.
  
• Information from those in favor of a flat tax:
  • Information from Congressman Armey on the flat tax.
  • View the flat tax postcard size tax return.
  • Calculate your tax liability under the Armey flat tax (Social Security and Medicare taxes would still be owed).

  Information from those opposed to a flat tax:

  • Citizens for Tax Justice - 5/17/95 congressional testimony
    

• In Fall 1997, Congressmen Armey and Tauzin scheduled debates on their tax reform proposals. The debates were sponsored by Citizens for a Sound Economy and more are scheduled for 1998.

• Senator Spector reintroduced his proposal to replace the income and estate and gift taxes with a 20% flat tax based on the Hall-Rabushka model, but with limited deductions for mortgage interest (on $100,000 of acquisition debt) and charitable contributions ($2,500 of cash contributions). This legislation (S. 593; 105th Congress) is a more detailed proposal than his proposal introduced in the 104th Congress (S. 488).
  
  
• Congressman Souder reintroduced his flat tax proposal (H.R. 2971 of 105th Congress, and H.R. 1780 of 104th Congress). Modified version of Armey flat tax. Calls for a 20% rate on earned income with a large standard deduction, charitable contribution per Sec. 170 and mortgage interest deduction limited to interest on $100,000 of acquisition debt. Businesses would be taxed at 20% rate on gross active income reduced by cost of busienss inputs, compensation and cost of tangible personal and real property used in the business activity. Unlike Spector flat tax on individuals, Souder flat tax does not limit the charitable contribution deduction (appears to rely on current limits at Sec. 170), while Spector tax only allows for deduction up to $2,500 of cash charitable contributions. Yet, both bills call for same 20% tax rate.
  

National Retail Sales Tax Proposals

• Joint Committee on Taxation reports on tax reform - click here.
  
  
• H.R. 25 (110th Congress) - national sales tax
• H.R. 25 (108th Congress; Linder) - replaces income, employment and estate and gift taxes with a sales tax. The rate for 2005 would be 23%. Thereafter, the rate would be 14.91% + the FICA and HI (Medicare) tax rates. The tax base would be "use or consumption in the United States of taxable property or services" with various credits allowed.
• H.R. 2717 (107th Congress) - replaces income, excise and estate and gift taxes with a 15% national sales tax.
• H.R. 2525 (107th Congress) - replaces income, payroll and estate and gift taxes with a national sales tax at a rate of 23%, at least for the first year.
• S. Res. 24 introduced by Senator Lugar expresses the sense of the Senate that the income tax should be eliminated and replaced with a national sales tax.
• Congressmen Schaefer and Tauzin have reintroduced their proposal to replace the income tax with a national retail sales tax - H.R. 1467 (106th Congress) [H.R. 2001 (105th Congress)].
• H.R. 2525 (106th Congress) - Fair Tax Act calling for a 23% sales tax on property and services to replace the income, payroll and estate and gift taxes.
• S 1376, Deficit and Debt Reduction and Social Security Solvency Act of 1999 - calls for a value-added tax on property or services sold in the U.S. by a taxable person in connection with a business and the import of property or services to be consumed in the U.S. The seller is liable for the tax and must provide an invoice to the buyer. Revenues from this new tax are to be used to reduce the public debt and help the Social Security trust fund.

Commentary:

Papers from organizations that favor a national sales tax:

• Cato Institute - How a sales tax would work
• Cato Institute - Economic impact of replacing the income tax with a sales tax
• Cato Institute - The Economic and Civil Liberties Case for a National Sales Tax
• Information from Americans For Fair Taxation - advocating a national sales tax

Papers from organizations that oppose a national sales tax:

• Citizens for Tax Justice - 23% National Sales Tax Doesn't Work
• Brookings Institute - William Gale:
  • Don't Buy the Sales Tax
  • The National Retail Sales Tax: What Would the Rate Have to Be?
    

Other Consumption Tax Proposals and Analyses

• Joint Committee on Taxation reports on tax reform - click here.
  

• Simplified USA tax proposal from Congressman English (H.R. 269, 108th Congress) - consists of a subtraction type VAT for businesses and a modified income tax for individuals with limited deductions and savings incentives.
  

• S. 112 (108th Congress, Hollings) - calls for a VAT to help fund the costs of war

• Call for study to determine the effect on the government and the economy of a tax system consisting of a 10% federal consumption tax + a 10% flat income tax. H.R. 853 (105th Congress) introduced by Congressman Traficant would direct the U.S. Comptroller General to conduct the study. The 10% flat tax to be analyzed would allow for business deductions, a standard deduction, a personal exemption, mortgage interest deduction on a principal residence, and a deduction for college tuition payments.

• H.R. 2685 (105th Congress) would allow individuals to elect to file a flat tax return that only allows for trade or business deductions, and standard and dependency deductions. The proposed flat rate is 20%. A dependency deduction is $5,000. The standard deduction would be $21,400 for married filing jointly, $14,000 for head of household and $10,700 for single, all to be indexed for inflation. Income of children under age 14 is included on the parent's tax return. A supermajority would be required to increase the rates or decrease the deduction amounts.

• Proposal to amend the U.S. Constitution to abolish the Federal income tax by repealing the 16th Amendment - H.J. Res. 70 (105th Congress).

Other Tax Reform Proposals and News

• Treasury Dept internal memo on tax reform (11/02)
• Treasury Department's report on Return-Free Tax System (12/03)
• GAO report on Alternative Filing Systems (1997)
• S. 1054 - Amendment 592 (Voinovich ) - to establish a blue ribbon commission on fundamental tax reform.  Passed in the Senate on May 15, 2003.  S. 1054 became a substitute for H.R. 2 which passed in the Senate 51-49 on May 15, 2003.
  
• H.R. 278 (108th Congress, Graves) - calls for repeal of the Internal Revenue Code by the end of 2007 and formation of a National Commission on Tax Reform and Simplification within the legislative branch to conduct a review of the tax system and make recommendations within 18 months.
  
• H. Con. Res. 141 (108th Congress) - "Expressing the sense of the Congress that the Internal Revenue Code of 1986 should be fundamentally reformed to be fairer, simpler, and less costly and to encourage economic growth, individual liberty, and investment in American jobs." The resolution calls for a national debate on fundamental tax reform. Passed in the House on April 10, 2003.
  

• H.R. 2716 (107th Congress) - the "Date Certain Tax Code Replacement Act" - repeals all federal taxes other than self-employment taxes and  FICA and Railroad Retirement Tax Act taxes, effective for tax years beginning after December 31, 2005, provided a new federal tax system is created by July 4, 2005. This proposal also calls for creation of a 15-member Commission to do the following

"(A) to conduct, for a period of not to exceed 18 months from the date of its first meeting, the review described in paragraph (2); and
(B) to submit to the Congress a report of the results of such review, including recommendations for fundamental reform and simplification of the Internal Revenue Code of 1986, as described in subsection (g).
(2) REVIEW- The Commission shall review--
(A) the present structure and provisions of the Internal Revenue Code of 1986, especially with respect to--

(i) its impact on the economy (including the impact on savings, capital formation and capital investment);
(ii) its impact on families and the workforce (including issues relating to distribution of tax burden);
(iii) the compliance cost to taxpayers; and
(iv) the ability of the Internal Revenue Service to administer such provisions;

(B) whether tax systems imposed under the laws of other countries could provide more efficient and fair methods of funding the revenue requirements
of the government;
(C) whether the income tax should be replaced with a tax imposed in a different manner or on a different base; and
(D) whether the Internal Revenue Code of 1986 can be simplified, absent wholesale restructuring or replacement thereof."

• Congressman Gephardt has modified and continues to promote his 10% tax plan.
  • H.R. 3620 (105th Congress)

   

• H.R. 2329 (105th Congress) would allocate corporate income tax revenues for payments to qualified registered voters, and would eliminate the double taxation of corporate income by not taxing dividends received by individuals and corporations ( "payments" received by registered voters would also not be taxable). Would eliminate the 35% corporate tax rate and cap the maximum corporate tax rate at 34%. Also calls for limits on federal spending and a supermajority vote to increase internal revenue, with limited exceptions.
  

• The 1996 report of The National Commission on Economic Growth and Tax Reform ("Kemp Commission"). The report provides some core recommendations, six working princples and six point of policy (including a single tax rate) for a new tax system, but does not recommend any specific new system.

• Senator Kennedy outlined a plan for tax and other reforms in December 1997. He would like to see simplification, but retain a progressive rate structure. He suggests 10%, 20% and 30%. He would also like to close existing loopholes for individuals and businesses (but is not specific as to what they are). He stated that the tax code "contains 120 tax subsidies costing $500 billion a year -- more than Social Security, Medicare, or any other federal entitlement. Some of these subsidies are justified, but many are not." He also proposes that the cap on payroll taxes be removed so that all wages and self-employment income is subject to social security taxes. He proposes to use the revenues generated from this change to reduce the social security tax for everyone to 5.3%..

• Proposal to terminate the Internal Revenue Code effective for tax years beginning after December 31, 2001. Purpose - to encourage Congress to reform the current tax system.H.R. 2490 and S. 1225 (105th Congress). Also see H.R. 2483 and S. 1233 that propose to terminate all of Code except social security, self-employment and railroad retirement taxes. H.R. 3063 and S. 1520 (105th Congress) would repeal the Code except for social security, self-employment and railroad retirement-related laws, for tax years beginning after 12/31/2001. Also see H.R. 3097 which passed the House on June 17, 1998 (219-209). Suggests that new federal tax system by "simple and fair" and apply a low rate, provide tax relief for working Americans, protect rights o taxpayers and reduce collection abuses, eliminate bias against savings, promote economic growth and job creation, and not penalize marriage or families. New tax system should be approved no later than 7/15/01. Also see S. 1555 to restructure IRS, repeal IRC after 2000 (except social security, SE tax and railroad retirement taxes), and terminate the IRS after 9/30/01. The National Federation of Independent Businesses (NFIB) is working to get signatures on a petition to abolish the Internal Revenue Code (LA Times article, 12/17/97).

Proposals which might be viewed as "stepping stones" to major federal tax reform

• Joint Committee on Taxation - Options to Improve Compliance and Reform Tax Expenditures (1/05)

• Simplification Options - Joint Committee on Taxation report as requested by Congress (4/01)

• Call for Repeal of Estate & Gift Taxes:
  • H.R. 42, H.R. 86, S. 56 and S. 75 - would repeal estate, gift, and generation skipping transfer taxes.
  • S. 76 - phases out estate, gift, and generation skipping transfer taxes
  • H.R. 166 - to repeal estate and gift taxes. Also see H.R. 224.
  • The Joint Committee on Taxation reported that in 1994, estate and gift taxes accounted for 1.21% of total federal receipts (JCS-1-96; 1/14/96; page 16). Senator Kyl's bill states that in fiscal year 1996, less than 1% of federal revenues were derived from estate and gift taxes.

• Call for Repeal of AMT: In 1997, Senator Kyl introduced S. 73 to repeal the corporate alternative minimum tax (AMT). Senator Kyl points out that the corporate AMT is not really a tax, but instead serves as a prepayment of a corporation's regular income tax. He calls this practice one of businesses being "forced to make interest-free loans to the federal government under the guise of the AMT." He also notes that most of the corporations that pay AMT are relatively small. In addition, Senator Kyl points out that AMT causes corporations to maintain two sets of tax records. Finally, Senator Kyl suggests that repeal of the AMT will "help free up badly needed capital to assist in business expansion and job creation." (Cong. Rec. 1/21/97). In the 106th Congress, S. 54 was introduced to repeal the corporate AMT.
  
  H.R. 1233 (108th Congress) calls for repeal of the AMT.

To obtain copies of the bills listed above:

• Congressional Record/Legislative Proposals

Comment Letters Submitted by Joint Venture's Tax Policy Group For Tax Reform Hearings Held by the House Ways and Means Committee in 1996

• Impact of Tax Reform on State and Local Government

• Impact of Tax Reform on International Competitiveness

• Impact of Fundamental Tax Reform on Domestic Manufacturing

More about ...

• Information from the Joint Tax Committee of Congress.
• Information from the Joint Economic Committee of Congress.

This page last revised on July 3, 2009.

Any views and opinions expressed in this page are strictly those of Professor Annette Nellen. The contents of this page have not been reviewed or approved by San José State University.