Sen. Russell B. Long (D-La.), chairman of the Senate Finance Committee, proposed yesterday that Congress repeal the Social Security payroll tax and replace it with a "value-added" tax -- a complex form of sales tax now used in Europe.
Long gave no indication that he actually plans to press his plan next year. Aides said that while fullfledged hearings were not likely, the Finance Committee may commission a study on the proposal -- the first step toward possible action later.
The Louisiana senator has suggested the move before, and Rep. A1 Ullman (D-Ore.), chairman of the House Ways and Means Committee, also has toyed with the idea. However, this time Long seemed more forceful in advocating the plan.
Long asserted in a speech that "it is time to overhaul our system with structural changes" such as the value-added tax" and we should be working on it." He said the move would prove popular with taxpayers "because it would benefit all Americans."
Long argued in his speech that a value-added tax would be superior to the present payroll tax because it would hit consumers less harshly, reward efficient corporations that keep their costs down, and help the U.S. trade posture by bolstering exports.
The Louisianan conceded that value-added taxes can be "regressive -- that is, hit the poor proportionately harder than the rich. But he said it would be no worse than the present payroll tax, and probably could be drafted to exempt purchases of basic necessities.
Under the value-added tax, the government imposes an extra levy on a product each time the value of the good is increased through the manufacturing process. In most cases, these taxes ultimately are passed on to the consumer. As a result, the plan works much like a sales tax.
Current estimates are that a 5 percent value-added tax would bring in about $61 billion in revenues. At that rate, it would take a 13 percent value-added tax to replace the present Social Security payroll tax, under fiscal 1980 projections.
The value-added tax has been used widely in Europe, in part because of the need there to collect taxes at every stage of the manufacturing process, to minimize cheating. However, the procedure is complex and difficult to administer.