When Americans yearn for new fashions, they turn most frequently to Europe. The Paris gown, the Dutch cheese, the Swedish-built station-wagon -- all provide a feeling of chic that products made in Oshkosh just can't seem to match.
So, it's no great surprise that in searching for a new tax system, leaders here should be eyeing the European "value-added" tax, a nifty little revenue-producer that's been used widely on the Continent since 1967.
Like many of today's flashy European imports, the VAT -- as it's known among taxophiles -- seems for some Americans to have far more flair than its domestic tax counterparts, and likely to get better mileage as well.
The question is, first, whether the value-added tax is suitable for America's larger, more complex economy, and -- second -- whether it's the right vehicle for the job that those advocating the new move seem to have in mind.
What the value-added tax is, in essence, is a complex form of national sales tax, in which the government levies a tax at each stage of the manufacturing process, based on the value each producer has added to a product.
Just as in the case of a sales tax, the brunt of a value-added tax is paid ultimately by the consumer. But it's listed separately only through the wholesale level. At retail, it's "hidden" from the customer -- as part of the price.
America's flirtation with the VAT began in the early 1970s, when the Nixon administration briefly considered the measure as part of a broader plan to spur U.S. exports. But the bid ran into stiff opposition from liberals.
However, the issue was revived last week by Sen. Russell B Long (D-La), chairman of the Senate Finance Committee, who proposed using VAT to replace part of the present payroll tax, which some say has become too big.
Long's proposal -- to begin looking into a VAT plan, if not actually adopting one -- promptly was endorsed, with some caveats, by House Ways and Means Committee chairman Al Ullman (D-Ore.), who had been toying with the plan for years
The main reason Ullman and Long are considering the move is that, like many members of Congress these days, they're looking for an escape from rising Social Security payroll taxes.
Voters are upset over the increase in payroll taxes, but don't want to use general income-tax revenues to finance the system, for fear of destroying the mythical link between "contributions" and Social Security benefits.
(Actually, that link doesn't really exist. This year's benefits are financed by this year's payroll tax receipts, not by monies paid in during previous years. But many voters feel more secure believing that it's there.)
On the surface, at least, the value-added tax would seem to provide some attractive features for dealing with the Social Security problem in this country:
It allows lawmakers to turn to a brand new form of tax that could be earmarked specifically for the Social Security trust fund, without getting Congress mired in the sticky issue of general incometax revenues.
Because it's "hidden" from consumers, the VAT is less-visible than the present Social Security payroll tax, which workers now feel with every paycheck -- and it's less likely to cause a stir if the tax rate has to be increased.
The VAT is an easy money-raiser. Tax experts figure that each percentage-point of valueadded taxes would bring in $12 billion in revenues. A VAT of, say, 4.25 percent would replace a third of today's payroll tax.
But the plan also presents some problems, not the least of which is that it's inflationary. Because the VAT is absorbed directly into rctail prices, it would send consumer prices soaring, bloating cost-of-living raises as well.
For another, a VAT wouldn't be as "progressive" as the income tax is. Instead, it would hit proportionally harder on the poor. (The problem can be offset some by exempting food and basic necessities, but the difficulty still holds.)
Moreover, for all Ullman's talk about simplicity, a European-style VAT would be far more complex than most taxes now in force here. In France, producers must pay the full tax at each manufacturing stage, and then get a partial rebate.
The only major value-added tax now in effect here in the U.S. is the new state corporation tax voted in by Michigan in 1976. Ullman described that plan as a possible model. In reality, however, it's a tax accountant's nightmare.
The base on which it's levied not only includes profits, but wages, interest, royalties and other items -- offset by a spate of "adjustments" covering everything from the cost of acquisitions to expenses paid for rental housing.
The problems inherent in a European-style value-added tax wouldn't be as touchy as the Michigan plan seems to be. But analysts see a truckload of problems ahead anyway -- from streamlining the measure to tailoring it for U.S. needs.
Indeed, there seems to be some reason for questioning why the U.S. even should consider a valueadded tax. Experts say the fact that Europeans turned to the VAT concept bears little or no relevance to the U.S.
The European VAT was enacted to replace a jumble of so-called "cascading" turnover taxes that had piled up over the years and were virtually unenforceable. In the face of widespread tax cheating, authorities needed a way to crack down.
But, except for a few state levies, there isn't that complexity in the present U.S. tax system -- and voluntary compliance with the tax code still is relatively high. Even a straightforward sales tax would be easier to administer than VAT.
On the issue of spurring exports, it's true that the VAT could be rebated when U.S. products are shipped overseas -- a benefit not now possible with the federal income tax. But most studies show it would have little effect on exports.
Finally, there's the question of maintaining the "integrity" of the Social Security trust fund. Tax experts argue that imposing a VAT would break the mythical "link" as much as shifting to income-tax revenues -- with fiercer consequences.
What it all seems to boil down to is that, like some of those tiny foreign squarebacks, the valueadded tax may prove far less attractive when it gets here than it seems from across the sea.
What's good for the backroads in Italy isn't always comfortable on superhighways in Oklahoma. The betting is that Ullman and Long will decide to cancel their orders once they've seen how the European model actually performs.