Paul L. Caron

Wednesday, May 27, 2009

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.

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Tracked on May 27, 2009 1:38:00 PM


The sad thing is - this will likely be slapped on TOP of the current tax structure, not used as a replacement.

And then spending (and the deficit) will go up because there's the prospect of all this revenue coming in. When it doesn't materialize on schedule - what then? Raise the VAT even more?

There's an old saying that you can shear a sheep many times, but you can only skin it once. I think we're getting close to being skinned, and I wish Washington would stop sharpening the knives.

Posted by: jlawson | May 28, 2009 6:13:41 PM

A big question from one who admittedly has a cultural bias against consumption taxes (I'm from Oregon- we don't smoke that pipe here, except for products we want to limit consumption of like tobacco and alcohol):

Where can I find an analysis about the regressive nature of consumption taxation, and will this harm consumers rather than corporations?

Posted by: Ted Seeber | May 28, 2009 5:46:04 PM