The rest of the OECD relies less on income taxes and much more on consumption taxes, aka taxes on goods and services, which generate a steadier flow of revenue. (These statistics are from 2021 because OECD averages for 2022 aren’t available yet.)
The main consumption tax around the world is the value-added tax, a sort of super sales tax levied at each stage of production, distribution or sale of a product or service. The U.S. has state and local sales taxes and some federal excise taxes but is the only OECD country without a VAT.
Imposing consumption taxes of OECD-average size would put U.S. government finances roughly into balance. The Congressional Budget Office proposed a VAT much smaller than that—5%, the same as Canada’s—as No. 16 of its “Options for Reducing the Deficit, 2023 to 2032” report last December. It said the tax would reduce the federal deficit, which was 6.3% of GDP in the fiscal year ended in September, by about 1% of GDP. There appears to be no chance of this actually happening soon. But as the U.S. bumps along from to debt-ceiling showdown to threatened government shutdown to who knows what else, something has to give eventually.
Justin Fox is a Bloomberg Opinion columnist covering business, economics and other topics involving charts. A former editorial director of the Harvard Business Review, he is author of The Myth of the Rational Market.