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October 2011

A Value-Added Tax for America?

The U.S. federal government's budget deficit is at an alarmingly high level. According to the Congressional Budget Office (CBO), federal spending has exceeded revenues by well over $1 trillion per year since 2009. The projected total deficit for 2011 of 9.3% of gross domestic product (GDP) is expected to follow this trend, which is in sharp contrast to the average annual deficit of approximately 2.8% over the previous four decades. In addition, the amount of debt held by the public has also increased significantly—from a 40-year average of 37% of GDP to an anticipated 70% of GDP by the end of this year (“CBO's 2011 Long-Term Budget Outlook,” Publication 4277, June 2011). Although the spike in federal deficits and outstanding debt is partly a consequence of the policies adopted to counteract the recent recession, the CBO notes that these statistics also reflect an imbalance between spending and revenues that predated the downturn in the U.S. economy. This differential is at the heart of current political debates regarding the nation's debt ceiling and the actions that are necessary to help balance the nation's budget.

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