Summary: We estimate the budgetary and economic effects of a new broad-based 1 percent value-added tax (VAT) with a progressive universal rebate calculated based on earnings, which is enacted on January 1st, 2021.
Table 1. Conventional Budget Estimate, FY2021-2030
Billions of Dollars, Change from Current-Law Baseline
| Policy | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2021-2030 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| A 1% value-added tax (VAT) | 46 | 63 | 66 | 67 | 70 | 72 | 75 | 78 | 80 | 84 | 700 |
Table 2. Dynamic Macroeconomic Effects
Percent Change from Baseline
| Year | GDP | Capital stock | Labor income | Hours worked | Consumption |
|---|---|---|---|---|---|
| 2030 | 0.1% | 0.4% | 0.1% | 0.0% | -1.6% |
| 2040 | 0.4% | 1.0% | 0.4% | 0.0% | -2.1% |
| 2050 | 0.8% | 2.2% | 0.8% | 0.1% | -3.6% |
Note: Consistent with empirical evidence, the projections above assume that the U.S. economy is 40 percent open and 60 percent closed. Specifically, 40 percent of new government debt is purchased by foreigners.