Deficit panelist says consumption tax needed

By Reuters
Posted Nov. 16, 2010 at 10:45 a.m.

The United States needs to consider a European-style tax on consumption to help tackle the burgeoning U.S. deficit, a member of a presidential deficit panel said on Tuesday.

“We need a broad-based consumption tax. That is not politically popular, but at some point we are going to have to do it,” said Alice Rivlin, a former Congressional Budget Office director.

Rivlin is part of a 18-member presidentially appointed panel that is charged with finding ways to tackle the huge U.S. deficit.

The idea of a consumption tax or “value-added tax” has rankled key lawmakers and the Obama administration has said this is not under consideration.

But Rivlin said: “It does appeal to some conservatives, who say it is better to tax consumption than to tax income and savings.”

A “value-added tax” (VAT), or a tax on goods at each stage of production, is widely used across Europe. It has qualified backing from former U.S. President Bill Clinton and former Federal Reserve Chairman Paul Volcker.

In addition to the consumption tax, Rivlin said: “My hope is that we have a much simpler, lower rate, broader based income tax and corporate income tax, with a considerably lower corporate tax rate.”

The deficit panel is holding closed door meetings this week as it nears a December 1 deadline to issue its report.

Leaders of the panel last week issued a draft proposal that would bring $4 trillion in deficit reduction through 2020, but the bold ideas — including raising taxes and the retirement age — face congressional skepticism.

Rivlin was speaking at the Wall Street Journal CEO Council conference in Washington.

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