The Corner

Doug Elmendorf’s Brain in a Vat

CBO Director Doug Elmendorf told a group of reporters today that he has been receiving “a lot of questions” about a potential value-added (VAT) tax on goods and services.

The questions follow favorable comments from Obama economic adviser Paul Volcker on the possibility of replacing or scaling back the federal income, and reducing the deficit, via the VAT.

“Many people in Congress are interested in it,” he said of the VAT, a national sales tax that adds between 10 and 20 percent to purchases in European countries where it’s been implemented. “We’ve had conversations with a number of members and their staffs.”

Elmendorf declined to specify which members and said he has yet to field an official request to study a VAT tax. The CBO is in the process of figuring out how best to study a VAT tax’s impact, sorting through various structures employed by other countries. Elmendorf also declined to estimate what a VAT tax level would need to be to cover the 2020 debt, which the CBO predicted will be 90 percent of GDP.

But Elmendorf also told reporters that a VAT “would be subject to many of the same (tax) preferences the income tax is subject to,” and “could become very complicated.”

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