Many tax experts say it is unlikely that Bush will propose a national sales tax or a flat tax. They say the president could offer a value added tax, a kind of consumption tax.
A value added tax is in effect a sales tax imposed at each level of production of goods and services and is widely used by European governments.
Supporters of this tax see advantages, especially if it were coupled with reducing or eliminating corporate income taxes. Those taxes are getting harder to collect in an era when multinational companies use various loopholes to avoid paying US taxes.
"We need to look at all alternatives," said House Speaker Dennis Hastert, whose book this summer urged consideration of a national sales tax, a value added tax or flat tax to replace the income tax. Asked about the possibility of sweeping changes to tax laws during Bush's second term, Hastert told Fox News Sunday, "I think this is the only time in generations that you might have a chance to be able to do it."
Putting in place a value added tax is seen as a way of boosting the competitiveness of US companies and encouraging them to keep their production facilities in the US.
"The US tax system is out of step with the rest of the world. We are the only major industrial country that does not have either a national sales tax or a VAT," said David Wyss, chief economist at Standard & Poor's in New York.
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