Is a National Value-Added Tax On the Way?

July 22, 2005

Is the President’s Tax Reform Panel preparing to recommend some form of a value-added tax? At least some experts are starting to think so. From Business Week:

Most U.S. trading partners have a value-added tax. Supporters say that if the U.S. adopts one, it might attract more international investment and tax multinationals in a less complicated way. Backers also believe that shifting to a VAT would be much simpler for individuals, since most would no longer have to fill out tax forms.

One version, which is being promoted by Michael J. Graetz, a Yale Law School professor and former top Treasury Dept. official, would set a VAT rate at roughly 14% of the cost of every product. That would produce enough tax revenue to fund a cut in corporate income tax rates from 35% to 20%.

Graetz would keep the personal income tax, but he would set a single rate of 25% and get rid of many current deductions.

For some idea of what a nationwide VAT tax might look like, check out Chris Atkins and Curtis Dubay’s Fiscal Fact on the only state-level VAT in the United States.

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