Effects of a Federal Value-Added Tax on State and Local Government Budgets

A longstanding concern of state and local governments is that a federal value-added tax (VAT) could severely limit their reliance on sales taxes as a major source of revenue. This concern is too narrowly focused; a federal VAT could affect revenues from other sources and spending more than sales tax receipts. These broader budgetary effects have received little attention, even though they are a direct consequence of how a VAT would affect incomes, relative prices, and the value of existing assets.

Please also see this report's supplement on short-run effects and appendix.

This article was originally published in the the September 2017 edition of the National Tax Journal.