A recent paper from the Tax Policy Center (a joint operation of the Urban Institute and the Brookings Institution) makes for some excellent reading. Authors Eric Toder and Joseph Rosenberg analyze the consequences of adopting a modest 5% VAT in exchange for major reductions in corporate and payroll taxes. Grab a copy of their paper and take it with you on your weekend travels. You won't be sorry you did.

Here's the crux of their findings.

A simple 5% VAT -- let's call it a "mini VAT" -- imposed at the federal level would generate enough revenue to either: (1) slash the corporate income tax rate from it's current level, 35%, down to 7.5%; or (2) cut the employer contribution to social security taxes from 6.2% to down to 0.3%. Employer-paid Medicare taxes would remain unchanged, as would employee-paid payroll taxes.

Alternately, the VAT proceeds could be used to reduce both corporate income taxes and payroll taxes. Our 5% mini-VAT could reduce the corporate rate from 35% to 19.7%, while at the same time reducing employer-paid social security taxes from 6.2% to 3.5%.

[By way of reminder, payroll taxes are completely separate from individual income taxes, although both are taken out of a worker's paychecks and often confused. Payroll taxes are currently 15.3% on wage income, split evenly between employers and employees. Each party pays 1.45% in Medicare taxes and 6.2% in social security taxes.]

The analysis is revenue neutral, meaning a mini-VAT adopted under these scenarios would neither increase nor lessen the federal budget deficit. The clear implication, though, is that a higher VAT rate -- anything above 5% -- would allow for substantial reductions in the deficit.

Why does this plan make all the sense in the world? I'm glad you asked.

• First. Everyone should understand what's really going on here. A fiscal crisis is fast approaching and major tax hikes are inevitable. I'd love to tell you that we can claw our way out of this mess solely through spending cuts, but I'd be lying to you. An alternate revenue source is inevitable -- and VAT is the least worst option.

• Second. When VAT finally does arrive, it will be tossed together as part of a broader tax reform package in which other taxes are substantially lowered. This is sometimes referred to as a "partial-replacement" VAT, which is not a bad thing. It makes perfect economic sense to tax income LESS and tax consumption MORE.

• Third. A pure replacement VAT, in which the corporate income tax is eliminated altogether, simply isn't feasible. Generations of careful tax planning have resulted in billions -- if not trillions -- of dollars in tax assets being hoarded by U.S. companies. If Congress were to repeal the income tax in it's entirety, all those tax assets would vanish into thin air. A loss carryforward or foreign tax credit is absolutely useless if it can't be used to offset current income.

• Fourth. As judged by international norms, the top U.S. statutory rate is excessive. Among the countries in the OECD -- representing the world's major industrialized economies -- the U.S. has the second highest corporate tax rate. That's not where we want to be. True, effective corporate rates are much lower due to aggressive tax planning (transfer pricing, deferral, etc.), but that doesn't justify a statutory rate that's globally uncompetitive.

• Fifth. Employer-paid payroll taxes are an abomination. They are a tax on jobs. We should incentivize hiring, not punish it -- especially during this era of jobless recovery. Unless we want the entire country to resemble Detroit, we need to think about whether employer-paid payroll taxes are counter-productive. Besides, economists will tell you the burden of the tax is partially shifted to workers in the form of lower wages.

So does the TPC paper have our unequivocal blessing? Not quite.

One criticism is that the authors weren't bold enough for the VAT Bastard's liking. Why settle for a mini-VAT? Imagine the good that could be accomplished if Congress went with a grown-up VAT of say 15%, the minimum rate permitted in the European Union? Not only could we reduce corporate and payroll taxes, but then we could also cut individual income taxes. That would make the income tax system much more progressive, and mitigate the regressive aspects of taxing consumption. That said, a mini-VAT would be an excellent step in the right direction.

We will conclude with a question for Corporate America. How is the mini-VAT, as described by Toder & Rosenberg, not a sweetheart deal for the business community?