WaPo: VAT Gains Momentum

In today's Washington Post: Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look; Levy Viewed as Way to Reduce Deficits, Fund Health Reform, by Lori Montgomery:

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity. ...

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table." ...

"Everybody who understands our long-term budget problems understands we're going to need a new source of revenue, and a VAT is an obvious candidate," said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. "It's common to the rest of the world, and we don't have it." ...

In his 2008 book, 100 Million Unnecessary Returns, Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14% would raise enough money to exempt families earning less than $100,000 -- about 90% of households -- from the income tax and would lower rates for everyone else.

And in a paper published last month in the Virginia Tax Review [A Blueprint for Tax Reform and Health Reform, 28 Va Tax Rev. 287 (2009)], Burman suggests that a 25% VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25%. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.