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Exclusive: Treasury May Discuss National Sales Tax

A U.S. Treasury report on ways to cut corporate taxes will include discussion of a national sales tax, a senior Treasury official told CNBC.

The U.S. currently has no national sales tax, also known as a value added tax, or VAT, though many states do. The tax would be one option to help offset revenue lost from lowering corporate taxes. The report is due in the coming weeks.

The top corporate tax rate is now 35 percent, and the official said that if exemptions are eliminated, a 27 percent rate would be revenue-neutral.

Besides a national sales tax, the Treasury report will also discuss accelerating depreciation and expensing, to as much 35 percent of the value of new investments in the first year.

The Treasury official said the document would make no choice as to the best option, but would note that the "best bang for the buck" for growing the economy will come from accelerated expensing.

The Treasury document is partly an attempt to counter a proposal by Charles Rangel, the Democratic chairman of the House Ways and Means Committee, to cut the corporate rate to 30.5 percent from 35 percent. Rangel’s bill contains proposals to offset his tax cuts with the elimination of special tax breaks for corporations.

But the Treasury document will also discuss cutting corporate taxes and not offsetting them because, the official said, of the urgency to bring U.S. rates in line with competing nations. Both developed and developing nations are cutting corporate taxes to the point where the U.S. rate is no longer competitive, the official said.

The official said he is unsure how quickly, if it at all, President Bush will embrace one or a combination of these proposals. He was, however, skeptical, given the current political environment, that anything could get done in the 15 remaining months of the Bush administration. He added that Treasury hopes that the document will raise the importance of cutting corporate taxes as part of broader tax reform being considered.

But a White House official says there is still a fairly vigorous debate inside the administration about whether to include some form of a corporate tax cut in the upcoming budget proposal.

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