Bowles-Simpson & Tax Reform, 11/11/10

Erskine Bowles and Alan Simpson have released their “trial balloon” knock-down draft proposition for deficit reduction and it includes some tinkering with tax reform, and calls on “Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012.”

The Co-chairs of the Deficit Commission did not suggest a VAT.  That was expected, since PERAB (President’s Economic Recovery Advisory Board) had already taken value added tax off the table.  But, they did suggest flattening the tax code, by lowering income tax rates and at the same time broadening the base by removing the tax expenditures for mortgage interest deductions and employer provided healthcare.  They also suggested eliminating the AMT.  Overall, in addition to the significant cuts in expenditures, they have raised revenues as well.

No matter what is ultimately decided, or not, by the necessary 14 of 18 Commission members, any notion of sweeping tax reform including a VAT will have to wait for the 2012 presidential campaign and the possibility of a champion and meaningful debate on the issue.

Unfortunate as it may be for the competitive positioning of the U.S. economy in this era of globalization, analytical consideration of VAT will again have to wait for another day.