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Volcker Muses About “New Tax” Options, Including a VAT

1 min readBy: Joseph Bishop-Henchman has posted an interview that White House economic recovery advisor Paul Volcker gave in London last week, where he muses about the U.S.'s fiscal situation.

Volcker notes that federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenues have been about 18.5% of Gross Domestic Product (GDP) each year in recent history, and that the recent jump in spending to around 25% of GDP means that "you can't avoid thinking about taxes." He notes that the U.S. corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. is the highest in the world, and argues that there's "no potential" in the income tax or payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. , leaving you "with a new tax." He lists a carbon taxA carbon tax is levied on the carbon content of fossil fuels. The term can also refer to taxing other types of greenhouse gas emissions, such as methane. A carbon tax puts a price on those emissions to encourage consumers, businesses, and governments to produce less of them. , energy tax, or value-added tax as possible options.

Volcker's interview is a typical example of rhetorically setting up the inevitability of tax increases. Assuming that spending can't be cut, and assuming that entitlement programs can't be reformed, and assuming that income tax reform can't happen, therefore a VAT is inevitable.

Audio of his remarks in the video below.