Corporate executives expect a value-added tax to be considered by the U.S. Congress in the next five years, according to a survey by tax and accounting firm KPMG released on Thursday.
The poll conducted by KPMG of 600 executives at a cross section of U.S. domestic and multinational companies found that 57 percent expect Congress to consider legislation within five years, and one-third said they would need at least a year to update their systems to comply.
"The survey responses underscore a recognition that the short and long-term outlook for the U.S. fiscal deficit is bleak unless some combination of spending cuts and additional revenue is implemented within the next decade or sooner," said Hank Gutman, a KPMG tax principal and former chief of staff of the joint congressional tax committee.
Taxes on consumption are becoming more popular across the globe, with more than 150 countries now imposing some form of such taxes, according to the Organization for Economic Cooperation and Development. The Paris-based group calls it "the most important development in taxation over the last 50 years."
As the United States grapples with a three-fold spike in its deficit and limits on the amount of revenue that income taxes can raise, prominent officials, including House of Representatives Speaker Nancy Pelosi and Obama economic adviser Paul Volcker have suggested a VAT be considered.
The conservative Heritage Foundation, which opposes a VAT, estimates a 1 percent VAT could raise $63 billion a year.
The group calls the VAT a massive tax increase and advocates cutting spending to get a handle on the deficit.
A VAT is imposed on the value added to goods and services at each stage of production, with the full cost falling on the consumer. That will make it a tough sell for politicians.
"Enactment of a VAT will be a politically heavy lift," Gutman said. But he said economists prefer it to income taxes because it doesn't tax investment and they prefer it to retail sales taxes because it is harder to evade.
The United States is the only Group of 20 nations country without a VAT.
The biggest challenge seen by executives surveyed include compliance related issues, such as getting the right paperwork to tax collectors and obtaining the right software.
Because the tax is passed along to consumers, business should not have a major problem with it, Gutman said.
The survey was conducted at an event held by KPMG in October.
A tax panel of President Barack Obama's Economic Recovery Advisory Board had been set to release a list of ideas for tax reform on December 4. But Volcker, the board's chairman and a former chairman of the Federal Reserve, delayed the report, citing a need for more time to review comments.
The panel's policies cannot raise taxes for families making less than $250,000, a promise Obama made during his campaign, which the VAT would do.
Still, Pamela Olson, former assistant secretary for tax in the Treasury Department during the administration of George W. Bush, said she hopes it is one of the things the Volcker commission will put on the table.
"I don't see how we dig ourselves out of this fiscal hole without looking at something like a VAT," Olson said.
© 2024 Thomson/Reuters. All rights reserved.