I am using Audacity 2.0.2 on Windows 7 to transfer a recording of children from tape cassette to my PC. Some of the children held the mic to close to their mouths, creating distortion. Please inform me of how I might reduce the distortion with Audacity.
You may be able to make some slight improvement with the Equalization effect, but really there’s not much that you can do other than record it again. 
There’s two effects. The proximity effect like the beer bar band where someone is trying to swallow the microphone and actual distortion from being too loud. We can’t do much about either one. Koz