A new publication from the OECD, Economic Survey of the U.S. (large PDF), suggests much higher tax revenue. Specifically, the international group recommends that we enact two major new taxes, a value-added tax (a type of national sales tax) and a carbon tax (or cap-and-trade). Cap-and-trade is an Obama proposal that has been losing support, and the VAT is expected to be suggested by the President’s commission on fiscal reform when it finishes its report after the November election. More in line with Tax Foundation work (see here and here and here, for example), the OECD publication recommends trimming or repealing several deductions and exemptions in our personal income tax, specifically the mortgage interest deduction, the deduction for state and local taxes paid, and the exemption for employer-provided health insurance. If those big holes in the tax base were plugged, there wouldn’t be as much need for President Obama’s proposed 28% limit on the value of deductions, but the OECD cheers on that idea anyway, even suggesting that it be lowered to 15%. Of all the tax ideas in the President’s Budget, the limitation on deductions is the one that has been treated like a dog on Capitol Hill by members of both parties. It seems that there is at least one area of bipartisan agreement among legislators on federal tax policy: politically motivated deductions, exemptions and credits that damage the economy must be protected.
