Assume that we have already decided to raise taxes on the very rich (it still only brings in an extra $200-$250 billion per year) but we still need to do a lot more to close the gap between taxes collected and spending.

1) What is the best tax option from the list? In a short paragraph, please tell us why. Explain

CBO also offers large solutions to boost revenues, which include the following 3 key options:

Impose a new tax on consumption. A consumption tax generally applies to spending on goods and services. Such taxes include value-added taxes (VATs), retail sales taxes, and excise taxes. More than 160 countries have broad-based VATs, but currently, the United States does not have a broad consumption-based tax at the federal level. The average VAT rate for OECD countries was 19.3 percent in 2020; applying a 5 percent VAT rate to a broad base in the United States would bring in $3 trillion from 2023-2032.

Impose a new payroll tax. Current payroll taxes are tied directly to social insurance programs, such as Social Security and Medicare. CBO evaluates a new payroll tax that would not make any changes to existing payroll taxes, but rather impose a new one that would not be used to finance specific programs. Creating a new payroll tax of 2 percent on earnings, paid by employees, would reduce the federal deficit by nearly $2.3 trillion over the next 10 years.

Impose a carbon tax. Impose a tax of $25 per metric ton on energy-related emissions of CO2 in the United States (such as those from electricity generation, manufacturing, and transportation) and on some other greenhouse gas emissions from large U.S. manufacturing facilities. The tax would increase at an annual rate of 5 percent plus the rate of inflation since the previous year. According to estimates made by the CBO, implementing the tax would reduce the deficit by $865 billion from 2023 to 2032.