The push to consider a European-style value-added tax in the United States is moving along more rapidly than expected in the 96th Congress.

Although no one yet expects any such proposal to be adopted this session, the two congressional tax-writing committes have begun seriously exploring various alternatives.

Rep. A1 Ullman (D-Ore.), chairman of the House Ways and Means Committe, is expected to receive a prototype bill sometime in early May to use in mustering support for the VAT concept in preparation for preliminary hearings this fall.

Ullman already has begun quiet discussions with business and labor leaders to sound them out on what kind of measure they might back. His aim: To ward off a free-for-all over the measure until the effort is further along.

A shift to a value-added tax would be a major step for the U.S., which traditionally has shunned the measure as too complex and "regressive" - meaning it would hit the poor proportionally harder than the income tax.

But this time, Ullman-and Sen. Russell B. Long (D-La.), chairman of the Senate Finance Committee-have a new twist: They want to use the VAT to replace the also-regressive payroll tax, not as & source of additional income.


STRIPPED OF ALL ITS SURFACE MYSTIQUE, THE VAT essentially is a form of nationa sales tax. And, as in the case of the sales taxes now imposed by many states, it's ultimately passed on to comsumers.

The difference in the case of the VAT is in the way the tax is levied. Instead of being tacked on entirely at the point of sale, it's imposed at various stages of a product's manufacture-based on the amount of value added.

So, a steelmaker selling sheet to an auto manufacturer would pay a tax on the difference between the selling price of his stell and the cost of the materials he used to make it. He'd collect it back from the auto manufaturer.

The automaker then would pay a VAT based on the difference between the sales price of his auto and the cost of the products-including steel-that went into it. He in turn would pass the VAT on as part of his wholesale price.

And so on up the line.

To avoid double taxation, manufacturers along the line could claim a credit for the VAT paid to processors at earlier stages. So the automaker would get a rebate for the portion of the VAT that was paid by the steelmaker.

It's considered likely the U.S. will move toward a simpler system if it ultimately adopts a value-added tax, but no one yet has worked out the details.

Ullman is eyeing on such alternative: Collect the tax on a firm-by-firm basis, instead of for each individual product or service sold. It's simpler than the European version and can directly replace the payroll tax here.

Each firm would calculate its VAT by figuring its payroll costs, profits, depreciation and interest payments and subtracting its investment outlays. Any firm that(See INCOME, D3, Col.1) (INCOME, From D1) now pays employer taxes would have to pay a VAT.

Panel members also will have to decide how broadly based the new VAT should be. Liberals want big exemptions for food and medical services. But any such loopholes would erode the effectiveness of the new levy.

There also are some special problems to resolve: How to treat sales of houses, for example. Home ownership gets special treatment under the income tax laws. Should this be continued in a VAT as well?

But by far the biggest challenge will be to muster the nation's major constituent groups behind a value-added tax. The committee already has begun to make some inroads here, but the fight almost certainly will be uphill.

Despite the measure's glamor as a European import, the business community is sharply split over the issue. Many businessmen fear the VAT will end up as an added revenue-rasing device, not a replacement, bringing on more spending.

And labor's position still is unknown. The AFL-CIO bitterly opposed the VAT when the Nixon administration toyed with idea in the early 1970s, and may do so again.

Indeed, the biggest constituency for the VAT may be among senators and congressmen, who fell they have nowhere else to turn for revenues needed to sustain present government services.

Finally, there are significant differences between Long and Ullman, both over how big any new VAT should be and which major existing taxes it should replace.

Ullman is considering a 2 or 3 percent VAT, to replace only a portion of the current payroll tax.Long wants a 10 percent VAT or higher, to substitute for both the payroll tax and a protion of the current income tax.

What Ullman is trying to do now is persuade all sides to hold back on major criticism until the Ways and Means Committee gets ready to consider a specific proposal-possibly in line with next year's Social Security debate.

The Ways and Mean chairman is said to be fearful that preliminary sniping could kill the measure off-as happened in the move to eliminate the double taxation of business profits and dividends, which fell flat last year.

Meanwhile, however, Congress' widely publicized initial flirtation with the VAT is becoming more serious than had been proposed. The lawmakers still aren't ready to buy the measure. But they're looking with keen interest.