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Cash-strapped government. there is 50% for highest income earners. there is talk the v.a.t. could rise again and it's an election issue. >> this means they're likely raising money and the likely way is v.a.t. >> u.k. government with european administrations has come to depend on v.a.t. this year alone it accounted for 15% of total tax take. staggering $120 billion. it's higher in scand knave van countries, as high as 25%. >> even if you took a fairly conservative view, you don't want bigger government. if you look at the current situation, you need to raise money. this is the obvious place to ...

Who will be paying tax rate on their income of 25 and 28 and 330%. then going to grocery store and paying 20% tax on whatever money is left over. >> reporter: some nations exempt certain products such as food but analysts exemptions invite massive politics. >> we don't want to exempt food or exempt housing. we don't want to exempt healthcare. if we exempt all of those things we cut in half the tax base of the v.a.t. >> reporter: others worry about the impact on a poor but fear debt crisis would be more painful when devastating cuts from veteran benefit to social security and medicare. it makes...

The next page, 19%. and obviously, we've done a lot of stories about greece and their economic situation. value-added tax, charles? >> well, here is the syllogism. if you enact obama care it follows as the night and day that you have to have a v.a.t. the reason is if you legislate yourself as we just have, into european levels of entitlement, you are going to have the european-level of debt or -- of taxation, or you will end up with the greek levels of debt. and the easier option ultimately is going to be the v.a.t. it's not going to be today. it won't even happen after the 2010 elections, but...

Cutting back anyway is going to have a huge impact on consumer spending. it's obviously politically appealing because you can raise taxes southeru subtly and it again. it will come in at a low percentage and escalate quickly. obviously, there are problems, the europeans have had problems with implementation, with corruption, fraud, there is a lot of issues. ultimately it doesn't guarantee you deficit reduction. the only way to do that is spending reduction. no one wants to touch entitlements so i think charles is right that the v.a.t. is coming. >> without publicly endorsing at the white house...

Really significant chunk of revenue, value-added tax is the only option. >> reporter: even former fed chairman paul volcker one of the president's outside advisors recently said v.a.t. is not as toxic an idea as it used to be but neither the president or another public official embraced the idea. v.a.t. is a sales tax but collected in stages. take bread, for instance. >> when the farmer grows the wheat, sells it to the baker, the value-added tax on that. when the baker makes it into something, sells it to the grocery store, a value-added tax. when they sell it to the individual, value-added ta...