Volcker: Current tax code 'exhausted'; VAT or carbon tax may be needed

Paul Volcker, the former Federal Reserve chairman and part-time White House advisor, said new taxes such as a value-added tax or carbon tax might be needed because changes to the current tax system won't solve the country's debt problem.

Volcker said Wednesday that lawmakers looking to cut deficits to sustainable levels should first try finding a solution through spending cuts.

"If we can't, we ought to think about taxes," he said. "I think we've exhausted the present tax system. The payroll tax is quite high, the corporate income tax is quite high, personal income tax is up and down a little bit."

An energy, carbon or value-added tax would be more efficient than income taxes and should be considered, Volcker said in Washington at a debt summit sponsored by the Peter G. Peterson Foundation.

"What's the most efficient way to do it? There aren't all that many alternatives that jump out at you," he said.

Republicans highlighted a similar statement on new taxes by Volcker earlier this month to suggest that the Obama administration would soon seek to raise taxes. Volcker advises President Barack Obama on financial regulation reforms and serves on Obama's Economic Recovery Advisory Board.

Volcker acknowledged the political waves his statement on a value-added tax (VAT) caused.

"The more general issue of a value-added tax, which is common in every other industrialized country, I don't think it's on the political table... [but] it's the kind of thing you have to look it," he said.

A VAT is used by most European nations and affects the price of goods. Proponents have said that the VAT is a better option than the income tax because it would fall on consumption and not on investing and saving.