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Wednesday, April 7, 2010

Paul Volcker Again Mentioning a National VAT has an article today - "VAT: New Tax Coming Soon?" by Cait Murphy (4/7/10). It states that in response to a CBS question on April 6 in NYC, Volcker said that a VAT in the US was "not a toxic idea." The article also notes that Speaker Pelosi and Senator Conrad likely support not leaving the topic off the table. This is really important because:
  • Volcker advices President Obama.
  • The US is the only industrialized country without a VAT (although we have state sales tax).
  • A VAT can be more efficient than a sales tax and with a federal VAT, states could adopt it (at rates lower than existing sales tax) and get rid of their troubled sales taxes.
  • The current income tax is unlikely to solve our deficit problems (and yes, reduced spending should also be considered in addition to tax reform). See the Tax Foundation Fiscal Facts of 3/12/10 - Can Income Tax Hikes Close the Deficit?
I've discussed this before a few times (for example, 2/8/10 post which also notes Volcker's interest in a VAT).

I think a VAT is something that should definitely be discussed at the federal level with the states participating. I'll be writing more on the issues and opportunities of this (including using materials I wrote back in the mid-1990s when major federal tax reform was a very hot topic). I do have a brief overview to how the VAT works if you are interested - here. Here is a longer paper presentation from 1999 on major federal tax reform - much of it is still relevant today although the need for reform is likely greater today than ten years ago.

What do you think?

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