VAT proposal gains urgency as U.S. debt reaches $40 trillion

A value-added tax paired with budget cuts could raise the revenue needed to address the U.S. national debt, according to a proposal from investment adviser Peter J. Tanous. The proposal argues that spending cuts alone cannot close the federal deficit because mandatory programs and interest costs make up much of federal outlays.

The Congressional Budget Office estimates a 5 percent VAT could raise $350 billion in 2027, increasing to $440 billion by 2034 on a broad base. A 10 percent VAT could reduce the primary deficit by roughly $1.3 trillion annually after accounting for its effect on economic growth, according to Tax Foundation modeling cited in the proposal.

The tax would raise consumer prices and could weigh more heavily on lower-income households. The proposal recommends exempting necessities and providing rebates to low-income households to offset that effect.

Read the full story at thehill.com.