Crs Report for Congress

The idea of replacing our current income tax system with a \“flat-rate tax\” is receiving renewed congressional interest. Although referred to as \“flat-rate taxes,\” many of the current proposals go much further than merely adopting a flat rate tax structure. Some involve significant income tax base broadening while others entail changing the tax base from income to consumption. Proponents of these tax revisions are often concerned with simplifying the tax system, making the government less intrusive, and creating an environment more conducive to saving. Critics are concerned with the distributional consequences and transitional costs of a dramatic change in the tax system. Most observers believe that the problems and complexities of our current tax system are not primarily related to the number of tax rates, but rather stem from difficulties associated with measuring the tax base. Most of the recent tax reform proposals, such as the Shelby (S. 1040), the English (H.R. 269), the Specter (S. 907), the Linder (H.R. 25), and the Tauzin (H.R. 4168) plans, would change the tax base from income to consumption. One or more of four major types of broad-based consumption taxes are included in these congressional tax proposals: the value-added tax (VAT), the retail …