You hit the key question in tax reform right on the head:

One problem: While more specialists are joining the VAT fan club, they can’t agree on what to do with the money.

I have a few proposals along these lines. Michael Graetz and the Tax Reform Panel's analytic staff actually proposed more than one tax, rather they proposed a VAT with a simplified income tax, as well as a simplified Corporate Income Tax. My proposal is similar to Michael's and it includes spending allocations, which can be used to set the rates appropriately. I would extract the non-retirement payroll taxes and merged them with a broadenned business income tax. The business income tax would be paid by all businesses, regardless of form of ownership (in other words, sole proprietors and partners) and would no longer exclude labor and salary costs. In other words, I would turn it into a hidden VAT. I would have the Business Income Tax pay for disability insurance (with the option that firms could buy their own to cover all employees who have ever worked for them - provided that the benefits were better), retiree health insurance (with the same opt out provisions as disability), national health insurance (with opt out provisions for providing it to current employees), Medicaid, Earned Income Tax Credit (which is paid to employees rather than the government - and is only for retirement/retiree survivors insurance), survivors insurance of non-retirees (with same opt out provisions as disability), the proposed workers credit, the Child Tax Credit (both paid to employees as part of income - Child Credit will be $500/month per dependent), mortgage credits paid to employees (unless the employer or union provides no-interest home mortgages - in which case the employer keeps the credit), a charitable contributions credit as determined by the employee much in the same way that employees contribute to the United Way, employee education costs - including paying off the loans of recent graduates and other entitlements (TANF, Medicaid, Education Assistance - which could be redirected under the charitable contribution credit to private providers). If states piggy-backed they could add an additional contribution credit for the private provision of educational, welfare, mental health care, food assistance and corrections - although some of these public programs will be less needful with the other available credits. Note that potentially the Business Income Tax could replace most entitlement spending at the state and federal levels, including public education. A VAT would be set for each of seven regions of the country (with an equal number of electoral votes per region) and would fund discretionary spending in that region not funded by other taxes and fees (airline ticket, gas, etc). This includes everything from the cost of military personnnel stationed in the region to any earmarked grant programs (i.e., pork). Regions that want lots of military bases and special projects will pay higher VATs. Income taxes would still be collected on high income individuals, but not high income families. Michael proposes $50,000 exemption per worker, with $100,000 for a couple. I propose $100,000 per worker with no couple aggregation (if one spouse makes $70,000 and the other makes $40,000 the family would pay on $10,000 under Michael's plan and nothing under mine - a single person making $70,000 would pay on $20,000 while I would charge nothing). This tax would pay for the transition to personal retirement accounts (paying off the Trust fund plus any additional costs to be picked up by the general fund), net interest, debt repayment, foreign military adventures (fortress Europe, the Navy when deployed, Iraq, Afghanistan, the drug war, etc.), the contingent liability of the World Bank/IMF and the repayment of any federal debt held by the federal reserve. This tax would apply to inherited income when liquidated as well, which would be added to wage income, except that qualified transfers to an ESOP or similar broad based employee ownership plan would be tax exempt. I have dealt with retirement taxes in a Social Security blog post. I won't repeat these comments here. Some national spending programs would be funded by tarrifs, fees and fines, but not general levies. Examples here would be environmental research (paid for by superfund fees and gas and carbon taxes), transportation programs and investigations paid for by regulatory fees and gate fees, medical research and drug regulation paid for by licenses for using funded basic research, park fees funding National Parks (most parks would be regionalized, as well as most public land - unless transferred back to tribal ownership), EEOC and wage & hour and OSHA violation fines (I don't trust a southeast region to adequately fund these programs), tarrifs and fees to fund homeland security programs, seniorage to fund the operations of the Treasury and Commerce Department (s) not related to tax collection (Census, Economic Analysis, Labor statistics). Have I left anything out? Also, do you read these things? Let me know by email or post.