Taxable Base of the Value-Added Tax

摘要

The value-added tax (VAT) is a type of broad-based consumption tax, imposed in about 136 countries around the world. Domestically, it is often mentioned in policy discussions as a potential new or supplemental funding source for such large-scale social programs as Social Security, Medicare, national heath insurance, etc. An example of such a proposal is H.R. 15 introduced in the 110th Congress. In addition, the VAT figures prominently in most fundamental tax reform discussions. The key determinant of the VAT's revenue-raising potential is the size of its taxable base. This report estimates its size under two frequently used policy options. Under the assumption of the broad-based VAT, the potential revenue base could be equal to $8.3 trillion in 2006. Exempting certain expenditures, such as food, housing, healthcare, and higher education, would have reduced the taxable base to $4.4 trillion in 2006 These estimates are likely to overstate the sizes of the taxable bases somewhat as they assume no behavioral responses and perfect compliance with the law. This report briefly discusses these important caveats and their implications for further policy analysis.