To tame the deficit, America needs a national sales tax

Amid the chaos of another Republican meltdown in Washington, the party’s deficit hawks correctly point to a serious underlying issue: the federal debt. Total debt is now more than $33 trillion, the deficit is over 7 percent of gross domestic product, and this year’s net interest payment on the debt will probably be over $650 billion — which is not far off from defense spending. For almost a generation, policymakers have been able to avoid seriously confronting deficits because interest rates were so low and financing debt was easy. But with interest rates where they are now, the party might be over.

Fortunately, there is a simple solution staring us in the face — however, both parties refuse to accept it: Adopt a national sales tax, like every other advanced economy in the world. (Most countries call it a value-added tax, or VAT, because it is collected at each stage along the chain of production, rather than just once at the point of final sale.) According to the Congressional Budget Office, a broad 5 percent tax of this kind could raise $3 trillion over the next decade, massively reducing the United States’ fiscal hole. On average, European Union countries get roughly 20 percent of their tax revenue from a VAT; the United States is getting zero.

To read the full article, please click here.