Treasury is said to be eyeing value-added tax

The U.S. Treasury on Tuesday wouldn’t comment on a report that it will float the idea of a value-added tax as an option to pay for reduced corporate income taxes.

A report due soon from the Treasury discussing ways to make the U.S. business tax structure more competitive will include a VAT, or national sales tax, CNBC reported, citing an unnamed Treasury official.

Treasury spokesman Andrew DeSouza said the department would release a paper in coming weeks that would address the business tax system, but he declined to discuss specifics or the CNBC report. However, he said the document was not intended as a legislative proposal.

“There will be no recommendations, rather, a broad list of options that are more competitive than our current system,” DeSouza said.

CNBC also said the Treasury report would discuss reducing the corporate tax rate to 27% from the current 35% but making the change “revenue neutral” by eliminating some exemptions. It also would discuss increasing the expense allowance for new investments, CNBC said.

Treasury Secretary Henry M. Paulson Jr. said in July that other countries had surpassed the U.S. in cutting nominal corporate tax rates, putting American firms at a disadvantage.

The U.S. now has the second-highest nominal tax rate among industrialized countries at 39%, including state and local taxes. Deductions and credits reduce the effective taxes that companies pay but distort business decisions, Paulson said.

The Treasury said in a previous “background paper” that the U.S. rate could drop if certain corporate preferences were eliminated, such as deductions for U.S. production activities.