INTRODUCTION

Thomas S. Adams, an American, was one of the first commentators to discuss the concept of a VAT. Other than flirting with a possible federal sales tax as a source for revenue to finance World War II, the U.S. Congress has not seriously debated a proposal for a federal tax on consumption.

Retail sales taxes account for a significant share of state and local revenue, and at least one state relies on a state-level value added tax.

As discussed in Chapter 2, a consumption-based tax can take the form of an individualized consumption-based income tax (commonly referred to as a “consumed” or “cash-flow income tax) or the form of a consumption-based tax on sales of goods and services (single stage sales tax or multistage value added tax). This book has focused on the latter. Indeed, because most countries with consumption-based taxes rely on European-style VATs, this book concentrated on that kind of VAT.

On January 7, 2005, President Bush established a panel to recommend revenue-neutral options to reform the federal tax system to make it simpler, fairer, and more pro-growth to benefit all Americans. The panel issued its report on November 1, 2005. Although the panel received many submissions and discussed the possible introduction of a federal sales or value added tax, the panel did not include a transactional tax on consumption to supplement or replace any of the existing federal taxes on income, payroll, and wealth transfers. The next section discusses the panel's report.