The Martian stopped by the office yesterday to inquire about the value-added tax -- the famous VAT that is enjoying a surge of popularity in Congress.
We explained that the VAT amounts to a federal sales tax. It would be levied at each stage of manufacturing, on the value added to the product. Unlike the present sales taxes, it would be rolled cumulatively -- and invisibly -- into the product's price.
"But why do you want to get into all that," the Martian asked, "when you have a perfectly good income tax system?" We replied that the concept is currently embraced by those businessmen who see a need to encourage investment. An income tax is levied on both the income that's spent and the income that's saved. VAT would hit only the spending. It doesn't touch capital as it accumulates. And since poor people spend more of their money, and save less, than their more prosperous fellow citizens, VAT also tends to shift the tax burden downward on the income scale. We pointed out that there are many people, particularly on the upper rungs of the ladder, who believe that it would best serve the public interest to move some of the taxation a little lower.
"It's a brilliant example of the U.S. political system," the Martian finally said, having thought the whole thing over; "The VAT as I understand it is now supported by Sen. Russell B. Long and Rep. Al Ullman, both Democrats. Their principal opponent so far is a Republican, Rep. Barber Conable. It's a classic case of the party of business and established capital -- the Democrats -- versus the party of the people." We hadn't thought of it quite that way, we said, but perhaps he had a point.
"I thought you said there was a tax revolt in the United States," the Martian said. "Why add another tax now?" Because, we replied, Mr. Long and Mr. Ullman don't dare try to raise either the income tax or the payroll tax. Inflation is increasing the government's need for money, but reducing people's ability to pay. Everyone agrees that inflation is a growing meanace. "In that case, why even consider the VAT?" asked the Martian. "It would push up the price of every product, and be wildly inflationary." That was trenchant observation, we conceded. We suggested that he send Sen. Long a post card conveying the thought.
"There's an infinitely better alternative to the VAT," said the Martian. "If you want to cut both your income and payroll taxes, and keep funding Social Security, why not put a stiff tax on gasoline?" We shuddered, "You go too far," we said. "Americans will tax bread, or medicine, or the paychecks of people living at the very edge of poverty. But you must understand that this country holds gasoline in deep and reverent regard. To tax it (except, of course, for road building) would betray all of our traditional social values."
The Martian shook his head. "You Americans will never get either your taxes or your energy policy straight," he said, "until you learn to separate economics from your peculiar civic religion."