The paper said Merkel's Christian Democrats and their Bavarian allies were discussing raising the country's reduced VAT rate from 7 percent on certain things to the normal rate of 19 percent in order to help staunch Germany's surging deficit.
The lower rate currently applies to items such as food and the tax hike would add an estimated €14 billion to the government's coffers.
Citing parliamentary sources, Bild reported the conservatives were also mulling various combinations of raising the reduced rate while lowering the main VAT slightly to make it more palatable to voters.
The paper said a unified rate of 18 percent, that is increasing the lower rate by 11 percentage points while cutting the main rate to 18 percent, would still bring in an extra €7 billion in tax revenue.
Ronald Pofalla, the Christian Democratic Union's secretary general, denied the conservatives wanted to raise taxes: "This report is absolute nonsense."
However, the story in Bild is sure give ammunition to Merkel's political opponents in the run-up to this September's general election, since she was responsible for raising the VAT from 16 percent to 19 percent a few years ago.
Bild also reported the conservatives were considering cutting welfare benefits should they win the election this autumn.
"The cat is out of the bag: the poorest are to pay for the crisis," said Oskar Lafontaine, the head of the socialist party The Left.