VAT: This One Kind of Tax Could Help America's Massive Debt Problem

James Pethokoukis

I don’t know what the US federal debt-to-GDP ratio will be in the year 2050. Probably much higher, I would guess. The Congressional Budget Office’s extended baseline forecast — basically current law extended forward — sees debt held by the public rising from 78 percent of GDP in 2019 to 144 percent by 2049. But there are budget scenarios would take it to over 200 percent of GDP.

A higher tax burden seems inevitable. So the trick will be to raise more revenue, but do it in as economically efficient way as possible. And that way probably isn’t through a massive wealth tax. Here is a bit on this subject, via my chat last August with AEI economist Alan Viard:

Pethokoukis: Have you heard of any new ways to raise tax revenue that sound like good ideas, that are done in a fair and efficient way?

Viard: Well, in the past I’ve tended to think that we ought to try to shift to an almost completely new tax system: the Bradford X-Tax, which is a novel method of taxing consumption. I still think that is an economically appealing way to raise revenue, but I’ve come to conclude that politically it’s not viable. People don’t understand it and won’t support it, so I find myself falling back on what is a very common idea, which is to introduce a value-added tax alongside the income tax. All other industrialized countries in the world use a value-added tax. It’s reasonably easy to administer, although of course, every tax has administrative problems.

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