Full article:The U.S. should consider using a European-style value added tax to help bring the deficit down, said White House adviser Paul Volcker in response to a question from CBS MoneyWatch.com at a panel discussion in New York City Tuesday night. "We have to think about really revamping the tax system," said Volcker, who's best known for successfully beating down inflation while serving as Ronald Reagan's Federal Reserve chairman. The VAT, a levy on all the goods and services you consume, is not a "toxic idea," he added.
White House adviser Paul Volcker (Credit: AP)
Until recently, discussion of a U.S. VAT had been limited to the back rooms of think tanks and cocktail hours of high-minded conferences. But nearly every other industrialized nation has one, and the idea is beginning to spread. In addition to Volcker, the head of the Senate Budget Committee, Kent Conrad (D-N.D), has mused that a VAT has "got to be on the table," and Speaker of the House Nancy Pelosi (D-Calif.) has murmured sweet nothings about it. In fact, interest in a VAT is cropping up all along the ideological spectrum (albeit more often along the leftish end).
The case for a VAT is simple: The U.S. government's fiscal gap is widening by the hour. The deficit for 2009 alone was a cool $1.4 trillion, and it's projected to hit $1.6 trillion this year. By the end of the year, the Office of Management and Budget says the gross federal debt will stand at $13.8 trillion. As Bruce Bartlett, a former Reagan economic advisor who supports a VAT, puts it, "The U.S. needs a money machine." A VAT, because it touches every transaction, is just that: The Congressional Research Service estimates that each one percent of a value-added tax would raise $50 billion. That's real money.
To be sure, no one expects a VAT to join the tax code this year or next. But what about by 2020? The odds narrow sharply. "There's very little chance in the next few years," says Brian Harris, a senior research associate at Brookings, a left-of-center think tank, "but a substantial chance in the next decade or so." And Ryan Ellis, tax policy director at the right-of-center Americans for Tax Reform, who loathes the idea, says of the VAT, "I think it's coming, in the next five to 10 years certainly."
I'm interested in what people in other parts of the world that have a VAT tax think.