Value-Added Tax: A New U.S. Revenue Source?

Order Code RL33619. Value-Added Tax: a new Revenue Source? Updated January 3, 2008. James M. Bickley Specialist in Public Finance Government and Finance Division Value-Added Tax: a new Revenue Source? Summary President George W. Bush has stated that tax reform is one of his Administration's top priorities. Some form of a Value-Added tax (VAT), a broad- based consumption tax, has been frequently discussed as a full or partial replacement for the income tax system. As of January 3, 2008, in the 110th Congress, four proposals for fundamental tax reform include some form of a VAT: 1040, 4159, S. 1040, and S. 1081. In addition, in the 110th Congress, Representative John Dingell introduced 15, which would levy a VAT to finance national health insurance. A VAT is imposed at all levels of production on the differences between firms'. sales and their purchases from all other firms. For calendar year 2005, a broad-based VAT in the United States would have raised net Revenue of approximately $50 billion for each 1% levied.

A value-added tax is a tax, levied at each stage of production, on firms’ value added. The value added of a firm is the difference between a firm’s sales and a

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