PERHAPS IT WAS only a passing fancy. But the other day the chairman of the Senate Finance Committee admonished the administration to consider a value-added tax to help pay for Social Security. That suggestion immediately qualified as Worst Idea of the Week. Sen. [WORD ILLEGIBLE] Long was addressing Bert Lance, the President's director of management and budget, was offered no response. But it's never wise to disregard Sen. Long's thoughts on taxation.
The value-added tax is theoretically assessed against each stage of the manufacturing process. In fact, it's passed along - growing in size and weight as it rolls toward the final buyer, also known as the consumer. If it applies to everything including industrial machinery, it becomes - for industry - a tax on investment. That's the last thing that this country needs, with investment rates too low already. But if capital goods are exempted, then the VAT becomes merely a federal sales tax with the burden falling wholly on the retail customer.
Proposals for a federal sales tax crop up from time to time, but there are a couple of things seriously wrong with it. One is the principle, for it's regressive: Poor people pay a larger proportion of their income into it than do the wealthy. The other is the threat that it levels against state governments, for the sales tax is their largest source of revenue and they strongly resist staring it with the federal tax collectors.
The Social Security system is now running a deficit that has to be closed. Social Security is currently supported by a payroll tax that is far more regressive than even the sales tax and cannot be raised much higher for reasons of equity. President Carter wants to begin using the income tax to help pay for Social Security. The income tax, after all, by far the fairest of the national taxes. Sen. Long objects to using the income tax for Social Security. The ultimate decision by Congress will set a precedent of great importance for the distribution of tax loads among Americans of different income levels.
The VAT has appealed most strongly to those governments with conservative fiscal ideas, in countries where tradition militates against voluntary reporting of income. It's easy to enforce. The first nation to adopt it was France, in 1954.
The general decline of taste, in our view, is demonstrated by the things that Americans borrow from France. In the Eighteenth Century we borrowed books, ideas and, on one memorable occasion, a navy. (You will recall that the French fleet under Admiral de Grasse swept into the Chesapeake Bay to cut off the British army at Yorktown from its naval support; that led to Gen. Cornwallis's surrender.) Two centuries later, we borrow styles in bathing suits, a name for Washington's new subway and, quite possibly, a bad tax.