The rising cost of social entitlement programmes in the US, including Medicare and Medicaid, and the ever-increasing inflation of health care costs, mean that most observers believe the question about whether to have some form of a federal indirect tax will have to be confronted.
However, though it is not impossible that Congress could pass the legislation required, the political obstacles look too great.
For years, tax scholars, practitioners, and politicians have been talking about the pros and cons of a national consumption tax in the US.
The VAT has always seemed the most probable form of indirect tax, although there has been intense debate over just how politically viable this type of tax would be.
Paul Volcker, White House adviser and former Federal Reserve Board chairman, has talked about the introduction of a VAT, and President Obama did not reject the idea out of hand when questioned by reporters in April.
Still, the VAT faces opposition from both political parties and the almost intractable problem of getting politicians to publicly endorse a reform that is essentially a tax increase on the entire country.
Still, there are some reasons to think that a VAT might fare better than many expect.
Legislative procedures
At a speech during the NYU/KPMG lecture on current issues in taxation, Tom Stout, a director at KPMG, spoke about the potential hurdles in the legislative process that could prevent the enactment of VAT legislation.
Stout said that the complicated legislative procedures that exist in Congress, which often act as an insurmountable obstacle for other types of legislation, may not represent the same kind of barrier to tax reform.
For instance, in the Senate, 60 votes are necessary to invoke cloture, which stops floor debate and requires a vote on the proposed legislation. In practice, it is difficult to corral 60 votes on almost anything.
One exception to this rule is a process called budget reconciliation, which many Americans became familiar with during the health care debate.
Through the reconciliation process, the Senate can make changes to a bill without the need for a 60-vote supermajority, as long as the change is related to outlays or revenues.
By their very nature, tax changes affect revenue, so they are automatically covered through budget reconciliation.
The pay-go rules, which also often complicate the path for new Bills to become law, are unlikely to cause much difficulty for tax reform. These rules require that any proposed Bill be budget-neutral, meaning that it will not add to the deficit.
In the case of adopting a VAT, the Bill would actually be a tax increase that would not increase the deficit, meaning that the requirements for pay-go are satisfied.
The politics
Though a VAT might avoid some procedural pitfalls, the politics about the issue still pose significant problems.
Both Democrats and Republicans oppose the tax. Democrats fear that it's a regressive tax that could start to supplant the income tax.
Republicans worry that that because it is an indirect tax that could generate hundreds of billions of dollars in revenue, it may be used to finance all variety of social programmes and would encourage profligate spending.
This concern from both political parties has prompted some rare bipartisanship efforts. In April, the US Senate voted 85-13 for a non-binding resolution condemning the tax.
US lawmakers are also aware that those governments from countries around the world that have adopted a VAT, such as Japan, were summarily voted out office in the next round of elections.
Still, despite the grim budget projections facing the US, Stout does not believe that a VAT is likely to make any headway in Washington unless other events, such as a spike in interest rates or a crisis in the bond markets, intervene.
Until that time, a VAT in the US may be a popular topic in academic circles, but its relevance on Capital Hill will remain minimal.
