For many years, economists, tax analysts and lawmakers have tried to pass a tax reform, to no avail.

However a bipartisan tax reform proposal from two prominent senators is now in motion and has earned positive responses in policy circles and may activate serious consideration of the idea over the next year -- a year marked by the increasing concern over U.S. debt.

If done the right way, some experts say, tax reform should simplify the tax code, increase fairness and apply taxes at lower rates to a broader base of activities.
Among the objectives: decrease tax avoidance and increase economic competitiveness.

The Bipartisan Tax Fairness and Simplification Act of 2010 -- prepared by Sen. Ron Wyden, D-Ore., and Sen. Judd Gregg, R-N.H., -- arguably could achieve much of that to some extension.

And in the process, many taxpayers would have the benefit of have their federal tax burdens fall, according to a new analysis from the nonpartisan Tax Policy Center.

One of the most important of the Wyden-Gregg proposal would eliminate the Alternative Minimum Tax and reduce the number of individual income tax rates from six to three -- 15%, 25% and 35%.

It would more than double the standard deduction to $15,000 for single filers and $30,000 for joint filers.

The proposal would also change how capital gains and dividends are taxed. It acreates a capital gains exclusion: The first 35% of long-term gains and qualified dividends would be tax free and the remainder would be taxed as ordinary income.

That effectively would raise the long-term capital gains rate to 22.75%, up from 15% today (or 20% starting in 2011).

Tax-free savings would be expanded. The proposal calls for a Lifetime Savings Account and it would consolidate all types of IRAs into a single Retirement Savings Account. Between the two accounts, a person could save up to $7,000 a year tax free (up to $14,000 for married couples) on top of their 401(k) savings.