No. of Recommendations: 3
If the problem is resolved by increasing taxes to a higher percentage of GDP to match current expenditures, there would be no guarantee that the government would not simply increase spending further, thereby starting down a path to the next deficit/debt problem. The long-run perspective suggests there can be no permanent solution to the deficit/debt problem until a mechanism can be established that prevents the government from running persistent deficits.”"
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I'm wondering when Mr. VAT makes his first trial balloon appearance next year? Once the republicans cave on tax increases and the tax increases don't close the deficit, i'm guessing some dem in a safe seat will float a VAT as a way to be fiscally responsible.


It would be interesting to see how much individual income tax as a percentage of GDP is raised by other countries. The U.S. record high was 10.2% in FY 2000 (and that wasn't even sustainable). Are other countries able to raise higher percentages of GDP as income taxes?

I have a theory that we would *have* to look at other forms of taxation besides income taxes (such as a VAT) if we were determined to raise more tax revenue relative to the size of the economy. It seems like all the high-tax countries have something like a VAT plus very high payroll taxes.

Assuming that Congress cuts spending to *only* 22% of GDP, we would probably have to raise our income tax revenues by about 40% over the unsustainable record high of FY 2000 to get an additional 4% of GDP in income tax revenue to balance the budget. This assumes that total tax revenue as a percentage of GDP would be about 18% in a "normal" economy under the current tax system.

Income taxes just won't get us there.
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