VAT’s the answer?

17 December 2012 By Martin Hutchinson

Washington’s budget spat shows that reducing deficits will be tough without new sources of revenue. A value-added tax could soon become a serious option. Using VAT to replace other taxes, especially corporate levies, could help boost U.S. competitiveness and growth.

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Glenn Hubbard, chairman of the Council of Economic Advisers under President George W. Bush, and Michael Bloomberg, the New York mayor, have recently advocated a U.S. value-added tax, similar to those in Europe. The 2012 Republican Party platform noted a VAT as a possibility.
Texas businessmen David Hartman and Tom Pauken have proposed a VAT to replace the employer’s payroll tax and corporate income tax.
In a 2011 report, the Congressional Research Service quoted two estimates for potential VAT revenue in the United States, both of the order of $50 billion per year for each percentage point of the tax rate.
According to the U.S. administration’s 2012 budget, corporate income tax receipts in the fiscal year to September 2011 were $181 billion, while social security tax receipts were $653 billion.

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