A VAT in the United States - Fat Chance? Will we ever enact a value-added tax, or is it just too political?

• Author: Levin-Epstein, Michael
• Position: Discussion

Many countries in the world have a value-added tax (VAT), including our neighbor to the north. But, so far, Congress has shied away from implementing a VAT in the United States, for--and lets be real--mostly political reasons. But is it an impossibility? For this roundtable, we convened a group of experts on VAT, including Harley Duncan, managing director at KPMG's Washington national tax office; Itai Grinberg, professor of law at Georgetown University Law Center; and Christopher Hall, manager of indirect taxes at Ford Motor Company in Dearborn, Michigan. Tax Executive Senior Editor Michael Levin-Epstein moderated the roundtable.

Michael Levin-Epstein: What's the possibility of having a VAT in the United States?

Harley Duncan: In the near term, and I'd say near to medium term, I don't think the prospects are particularly high that we will see a value-added tax in the U.S. Despite the fact that a VAT could add some significant, positive attributes to our tax system, I think the political environment is such that we would be unlikely to see a VAT. I think over time those prospects might change given budget situations, deficits, demographics, and the like. But in the near to medium term, I'm not particularly high on the prospects.

Itai Grinberg: I agree with what Harley has said. An old joke is that one party thinks that a VAT is regressive and the other party thinks that it's a money machine, and if they flipped views, then maybe we'd get a VAT. More seriously, I think it's fair to say that at a political level, we're just not that close to having a VAT in either party. At the same time, from an intergenerational perspective, what the long-term budget outlook highlights is a national tax-and-spending plan that asks succeeding generations to pay through income taxes for fast-growing, unfunded, largely health-related liabilities that the baby boomers enacted and will be the primary beneficiaries of. One might think that it would be fair for society to at least try to spread the cost of those programs more evenly across generations, and if we ever reach that view, we'll then think a consumption tax might do that more effectively than an income tax. A VAT is one form of consumption tax.

Christopher Hall: I would agree with both Harley and Itai. I think it's unlikely, and I would say highly unlikely, that we would move to a VAT in either the short term or medium term. I agree with all of those reasons. I would add that the efforts just to modify the existing regime of the retail sales tax, recognizing that it's state and not federal, the streamlined sales tax project, as worthy as that is or may be, has been going on now for about seventeen years, and it still has not yet accomplished the objective. The Marketplace Fairness Act of 2017 is a step in that direction, but I just don't see the political will to be there to implement a federal VAT, currently or in the intermediate term.

Levin-Epstein: Have there been any previous attempts to enact a VAT in the United States?

Duncan: I would think it depends on what you would call an "attempt." If you look at the history of federal tax reform proposals, the current one that at least the House leadership put out is closer to a consumption tax. It has some VAT characteristics, so there's been some movement in that direction. Congressman [Jim] Renacci, a Republican, introduced a VAT in this last Congress; Senator [Ben] Cardin, a...