23 Pages Posted: 30 May 2014 Last revised: 30 Jul 2014
Date Written: May 1, 2014
The United States has traveled a unique tax policy path, avoiding value added taxes (VATs), which have now been adopted by every OECD country and 160 countries worldwide. Moreover, many U.S. consumption tax advocates have insisted on direct personalized taxes that are unlike taxes used anywhere in the world. This article details a tax reform plan that uses revenues from a VAT to substantially reduce and reform our nation’s tax system. The plan would (1) enact a destination-based VAT; (2) use the revenue produced by this VAT to finance an income tax exemption of $100,000 of family income and to lower income tax rates on income above that amount; (3) lower the corporate income tax rate to 15 percent; and (4) protect low and-moderate-income workers from a tax increase through payroll tax credits and expanded refundable child tax credits. This revenue and distributionally neutral plan would stimulate economic growth, free more than 150 million Americans from having to file income tax returns, solve the difficult problems of international income taxation, and remove the temptation for Congress to use tax benefits as if they are solutions to the nation’s pressing social and economic problems.
Keywords: tax reform, consumption tax, U.S. tax plan, VAT, Tax Policy Center
JEL Classification: H24, H25
Suggested Citation: Suggested Citation
Graetz, Michael J., The Tax Reform Road Not Taken -- Yet (May 1, 2014). National Tax Journal, Vol. 67, No. 2, 2014, Forthcoming; Columbia Public Law Research Paper No. 14-398; Columbia Law and Economics Working Paper No. 484. Available at SSRN: https://ssrn.com/abstract=2442930