IMF tells US to introduce VAT to fight balloning debt

Sun 16th Jun 2013

As part of its annual review of the US economic performance, the International Monetary Fund as recommended that a Value Added Tax (see EU VAT) consumption tax regime be introduced.

The IMF has highlighted that the US debt is on target to hit 110% of GDP by 2015.  Many economists believe that any level much above 70% makes the debt unsustainable as the interest costs overwhelm the economy.

The US has a simplified Sales Tax regime, but is now the only country in the rich-club OECD not to have a full VAT regime.

Why VAT would be beneficial to the US

  • It is easy to collect as companies do the charging and collections
  • It is difficult to avoid through aggressive tax planning
  • It shifts the tax burden away from income generating sources (business taxes, salaries) onto less productive consumption
  • exports are exempt, helping economies grow through overseas trade

US left behind on global VAT competition

The US is the only country in the OECD that does not have a full VAT regime.  Japan Consumption Tax will double over the next two years, and both China and India are in the process of reforming their VAT systems to help their global competitive position.