Derek Thompson, “The Best Plan Yet? A Summary of the New Bipartisan Deficit Reduction Scheme,”, 11/17/10

“…(S)ix times the size of the Making Work Pay tax cut in the president’s 2009 Recovery Act, this would give employers and employees each a 6.2 percent tax cut on all wages up to $107,000. Employers would have thousands of dollars to spend on new equipment and workers, and employees would have a couple thousand dollars to spend on food and furniture.

So far, the White House has resisted this option for a few reasons: (1) it costs a lot of money; (2) without capping the payroll tax cut, a lot of this money will end up in wealthy people’s pockets and they might not spend it quickly; and (3) it’s unclear how well a one-year tax cut will stimulate growth if people know that taxes will rise significantly two years later. Still, this is a bold and worthy idea — the CBO esimates it could create up to 7 million jobs in 2011 — that would draw both liberal and conservative support.”

Glenn Hubbard, “Left, Right and Wrong on Taxes,” The New York Times, 11/15/10

“To meet the nation’s fiscal challenges, we need to refocus our economic activity — primarily with less reliance on consumption and more on investment and exports. The Bowles-Simpson plan to cut marginal tax rates and the corporate tax would help.  …

… The proposal calls for taxes and spending to be capped at 21 percent of gross domestic product, which, while higher than I might design, is a serious suggestion worthy of debate.

Second, it is not reasonable to argue that there is no single activity that can face higher taxation. If the economy must pivot toward investment and exports, tax policies must be changed to encourage productive investment over consumption.”

Aaron, Henry J. and Isabel V. Sawhill, “Bend the Revenue Curve: Health Reform Alone Won’t End Deficit,” The Washington Post, 10/13/10

“The dirty secret, known to responsible fiscal experts of both parties, is that the revenue generated under current tax laws cannot pay for the government services—health care and everything else—that Americans want for their children, their parents and themselves.

So here is what we propose: Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first.  Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first. Congress should link revenue from the new tax and other sources directly to public health care spending through a newly created health care trust fund. The trust fund would pay for all federal health care spending. This framework would mean that Americans would get the health care they are willing to pay for. If spending outpaces projections, Congress will have to choose between raising taxes and finding ways to slow the growth of spending.

By balancing revenue and health care spending, such a reform would help solve America’s long-term fiscal problems. In the near term, it would also support and sustain the economic recovery. Consumers would be encouraged to buy now, before the tax takes effect.

(fmr.) Sen. Fritz Hollings, “U.S. Is in a Trade War, Whether It Likes It or Not,” Huffington Post, 10/11/10

“This economy can be turned around on a dime by cancelling the corporate income tax and replacing it with a 5 percent value added tax. The FY 2010 estimate for corporate tax revenues is $156.7 billion. A 5 percent VAT reaps $600 billion with $443.3 billion left over to pay down the debt. This will eliminate the tax incentive to off-shore; eliminate the corporate income tax; eliminate the tax on exports, and make it profitable to produce in the United States. All that industry or corporate America needs is the assurance that we will implement a plan to compete in globalization.”

Ian Fletcher, “Is a Flat Tariff the Answer to America’s Trade Mess,”, 09/25/10

“Although this is a complex issue, the fundamental dynamic is clear from the obvious fact that a flat tariff would almost certainly trigger the relocation back to the U.S. of some industries but not others. For example, a flat 30 percent tariff (to pluck a number out of thin air) would not cause the relocation of the apparel industry back to the U.S. from abroad. The difference between domestic and foreign labor costs is simply too large for a 30 percent premium to tip the balance in America’s favor in an industry based on semi-skilled labor. But a 30 percent tariff quite likely would cause the relocation of high-tech manufacturing like semiconductors. This is the key, as these industries are precisely the ones we should want to relocate. Therefore a flat tariff would, in fact, be strategic.

The exact level at which to set the tariff remains an open question. Thirty percent is suggested here because it is in the historic range of U.S. tariffs and is close to the net disadvantage America’s trade currently faces due to America’s lack of a VAT. The right level will not be something trivial, like two percent, or prohibitive, like 150 percent. But there is absolutely no reason it shouldn’t be 25 or 35 percent, and this flexibility will provide wiggle room for the compromises needed to get the tariff through Congress.”

Robert Kuttner, “Another tax that hits the middle class,” Boston Globe, 06/30/10

(VATinfo Note: Kuttner does not advocate VAT, but implies acceptance if used for new middle-class benefits.)

“As the European experience shows, a VAT can indeed be an effective revenue raiser. But unless the proceeds go to support valued public services, it is just another tax on the middle class.

It is possible to make a VAT less regressive by using some of the new revenue to reduce income taxes or payroll taxes paid by working families. Some countries with VATs exempt necessities such as food. We can also offset its regressive nature by coupling it with new surtaxes on very high incomes.

So when the president’s fiscal commission raises the idea of a VAT, as is likely, we need to ask three questions:
- Are basic necessities like food and housing to be exempted?
- Is it part of a package that makes the tax system fairer and less onerous to the middle class overall?
- Do some of the proceeds go to finance public services that have been shortchanged for decades and that got further reduced in the current recession?

If not, the VAT should be considered dead on arrival. The last thing we need in a deep slump with persistent unemployment is higher taxes on the middle class.”

Paul Krugman, “Now and Later,” The New York Times, 06/20/10

At the moment, as you may have noticed, the U.S. government is running a large budget deficit. Much of this deficit, however, is the result of the ongoing economic crisis, which has depressed revenues and required extraordinary expenditures to rescue the financial system. As the crisis abates, things will improve. The Congressional Budget Office, in its analysis of President Obama’s budget proposals, predicts that economic recovery will reduce the annual budget deficit from about 10 percent of G.D.P. this year to about 4 percent of G.D.P. in 2014.

Unfortunately, that’s not enough. Even if the government’s annual borrowing were to stabilize at 4 percent of G.D.P., its total debt would continue to grow faster than its revenues. Furthermore, the budget office predicts that after bottoming out in 2014, the deficit will start rising again, largely because of rising health care costs.

So America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control — without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard — in particular, a modest value-added tax, say at a 5 percent rate, would go a long way toward closing the gap, while leaving overall U.S. taxes among the lowest in the advanced world.

But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t.

Hindery, Leo Jr. & Michael Lind, “America Needs a VAT, A value-added tax would go a long way toward solving several of the country’s fiscal and tax problems,” Los Angeles Times, 05/24/10

“A modest VAT will not by itself solve the nation’s long-term deficit problem. That will require, first and foremost, controlling the escalating costs of the American healthcare sector, which make U.S. goods and services far more expensive than in other countries. Introduction of a federal VAT would also need to be coordinated with reductions in sales taxes by states that might share the new revenue, and increases in overall taxation should wait until the American economy is out of intensive care.

That said, however, a modest VAT on the order of 5% that reduces both corporate income and payroll taxes and includes thoughtful exemptions would, perhaps more than any other single systemic initiative, spur investments, help America grow its way back to good economic health and materially reduce the deficit. It warrants the active and energetic support of the Obama administration and Congress.”

(fmr.) Sen Fritz Hollings, “Turned Off,”, 05/13/10

“President Obama has no experience in trade and takes the advice of Larry Summers, Tim Geithner, and the financial crowd. Summers and the financial crowd feel that as long as Corporate America’s profits keep flowing from China with the Wall Street market up, the U. S. has a strong economy. All needs to be done is to stimulate the financial community and consumption for the economy to recover. With imports soaring, we’re stimulating the production of China, not the United States. The Obama administration refuses to enforce our trade laws to protect the economy and change our tax laws to promote exports.

Corporate America, producing in China, has a 17% VAT rebated at export and pays no tax on its imports to the U. S.; whereby Corporate America, producing in the United States, pays on an average of 27% corporate tax plus a 17% VAT when its export reaches Hong Kong, for a total of 44%. This 44% is a substantial incentive for Corporate America to off-shore its production to China. Eliminating the corporate tax and replacing it with a 2% VAT would not only remove this incentive, but promote exports and raise more revenues. This should be done now.”

Michael J. Boskin, “Time to Junk the Corporate Tax,” The Wall Street Journal: Journal Opinion, 05/06/10

“There is considerable evidence that high corporate taxes are economically dangerous. In a 2008 working paper entitled ‘Taxation and Economic Growth,’ the Organization for Economic Cooperation and Development concluded that ‘Corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes.’  Virtually every major tax reform proposal in recent decades has centered on lowering taxes on capital income and moving toward a broad-based, low-rate tax on consumption. This could be accomplished by junking the separate corporate income tax, integrating it with the personal income tax (e.g., attributing corporate income and taxes to shareholders or eliminating personal taxes on corporate distributions), and/or allowing an immediate tax deduction (expensing) for investment (which cancels the tax at the margin on new investment and hence is the priority of most economists). The Hall-Rabushka Flat Tax, the Bradford progressive consumption tax, a value-added Tax (VAT), the FairTax retail sales tax, four decades of Treasury proposals and the 2005 President’s Tax Commission proposals would all move in this direction.

Reducing or eliminating the negative effects of the corporate tax on investment would increase real GDP and future wages significantly. Junking both the corporate and personal income taxes and replacing them with a broad revenue-neutral consumption tax would produce even larger gains. Nobel Laureate Robert Lucas concluded that implementing such reforms would deliver great benefits at little cost, making it ‘the largest genuinely true free lunch I have seen.’”