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Research report

Creating an American Value-Added Tax

Benjamin H. Harris, William G. Gale
February 25, 2013
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Abstract

In this chapter, we propose a value-added tax (VAT) to contribute to the U.S. fiscal solution. A 5 percent broad-based VAT, paired with subsidies to offset the regressive impacts, could raise about 1 percent of GDP per year. International experience suggests that the VAT can raise substantial revenue, is administrable, and is minimally harmful to economic growth. Additionally, a properly designed VAT might help the states deal with their own fiscal issues. Although a VAT would be regressive relative to current income, this regressivity can be easily offset by transfers that would make the net burden progressive.

Research Area

Federal Budget and Economy Economic effects of tax policy Individual Taxes Tax rates
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  • Benjamin H. Harris
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