By proposing a $40 billion- to $50 billion-a-year national consumption tax, Democratic presidential contender Bruce Babbitt has ventured where his rivals for the nomination have dared not tread: He's put a tax increase at the heart of his bid for the White House.
"It is time to end the conspiracy of evasion by our candidates for national leadership," former Arizona governor Babbitt said as he spelled out his proposal for either a 5 percent national sales tax or a European-style value-added tax (VAT) in a speech yesterday at the National Press Club. "We've been dancing around the truth, nickel-and-diming the deficit with proposals that don't scratch the surface of the problem."
None of his competitors in the Democratic presidential contest favors adopting a new sales tax or increasing income taxes as a way to address the federal budget deficit. And while some see a need for new revenues -- either in the form of excise taxes, oil import fees or improved collection of existing taxes -- most also agree with the basic line enunciated by Sen. Albert Gore Jr. (D-Tenn.): "Taxes should be considered only as a last resort."
Babbitt, who has been trying to carve out a niche as the Democrat gutsy enough to say the unspeakable on a range of tax-and-spending issues, expressed thinly veiled contempt for the tax postures of his rivals. "Let's be honest," he said. "Does anybody really think we can balance our budget with a sin tax or an oil fee? Is there one serious person who thinks we'll find a tenth of the answer in 'enforcement?' "
The tax he proposes would work in one of two ways; he said he hadn't decided which: either a a national sales tax, imposed at the point of retail sale, or as a VAT, imposed incrementally at all steps in the manufacturing process, and paid by the consumer in higher prices. In order to eliminate the regressive feature of such taxes, Babbitt calls for exempting such items as food, medicine, housing and clothing, and for providing off-setting income-tax relief for the poor.
"You can make it as progressive as you want to," he said, "and I am committed to working with Congress to do so."
While 45 states impose sale taxes, ranging from 3 to 7.5 percent, there has never been a national sales tax. The idea of one, corrected for regressivity, has in recent years accumulated advocates among the ranks of liberal and neo-liberal economists. Babbitt said his decicion to go that route came as a result of conversations with economist Lester Thurow, among others.
A national sales tax is far from popular with the public, however. Surveys taken in recent years show substantially more resistance to a national sales tax than to excise taxes or surtaxes on corporations or upper-income taxpayers. Considered on its own, a national sales tax is opposed by roughly a 2-to-1 ratio.
Moreover, many Democrats continue to feel it is politically suicidal for the party to focus on taxes. "The difficulty is that when the voters listen to a Democrat, sometimes what they hear is that we really aren't sure what we want to do, but we need the taxes to do it," said one party strategist, who asked not to be identified.
Others counter that in order to build credibility on fiscal matters, Democrats need to talk frankly about taxes -- but they should do so in the context of new initiatives they plan to fund. Polling data released yesterday by Louis Harris showed, for example, that, by 65 percent to 33 percent, Americans support increases in federal taxes to pay for improvements in education.
The poll, commissioned by the Democratic Governors Association, also shows that despite widespread apprehensiveness about the economy, voters give Republicans a 50 percent to 40 percent edge over Democrats in "keeping the economy prosperous" -- suggesting that the old tag of Democrats as profligate tax-and-spenders still has bite.
In their stump speeches, all eight of the announced or likely Democratic candidates focus on the unprecedented size of deficits of the Reagan era. This raises another concern among party strategists: With the annual deficit expected to drop this year, voter concern over the issue may wane.
Here is a rundown of the Democratic candidates' positions on taxes and deficits:Babbitt: In addition to proposing a national consumption tax, says he would cut spending by $40 billion to $60 billion a year by imposing a needs test on every government expenditure from defense to farm programs to entitlements. Sen. Joseph Biden Jr. (Del): Talks about taxes only as a last resort; says it would be bad policy to change the income tax after last year's major overhaul; says the most promising way to attack the budget deficit is to persuade banks to forgive Third World debt, thereby freeing up foreign markets for U.S. goods. Proposes an excise tax on alcohol and cigarettes, an oil-import fee pegged to a world price of $19 to $24 a barrel, and improved tax collection. Gov. Michael S. Dukakis of Massachusetts: Opposes a national sales tax because he considers it "regressive." Also opposes oil-import fees, excise tax or income-tax increases. Says "no serious candidate can rule out a revenue increase" but says that as president he would first launch a program to collect $110 billion a year in unpaid federal taxes. He cites one congressional study estimating that $35 billion could be collected by the fifth year of an agressive enforcement plan; many of his rivals says the figure is unrealistic. Rep. Richard A. Gephardt (Mo.): Supports a $5 a barrel oil-import fee, an increase in the minimum corporate tax provision of the new tax law and improved enforcement. As a last resort, "he doesn't rule anything out." Says a national sales tax would require hiring of 30,000 more revenue agents. Gore: Says he won't rule anything out but that he he does not have any plans to raise taxes of any kind. Says that the deficit should be reduced by stimulating economic growth, cutting wasteful spending and adopting an arms-reduction agreement. Jesse L. Jackson: Has said wealthy individuals and corporations are "not paying their fair share" of taxes but hasn't proposed any tax increase and says he would do so only as a last resort. Supports an oil-import fee, with the revenues targeted to infrastructure repairs rather than deficit reduction. Rep. Patricia Schroeder (Colo.): Opposes tax increases unless as a last resort, touts her fiscal conservatism -- "I have got a more fiscally conservative voting record than Jack Kemp," she said this week -- and proposes reducing the deficit by a "burden-sharing" scheme that would threaten developed nations with a "defense protection fee" on exports to the United States unless they increase their defense spending, thereby reducing U.S. military obligations. Sen. Paul Simon (Ill.): Boasts of his opposition to the tax laws that cut the top marginal tax rate from 70 percent to 28 percent but does not support a tax increase for wealthy taxpayers. Supports increased excise taxes, an oil-import fee and a balanced-budget amendment, but says the best way to reduce the deficit is to reduce unemployment through a public-works jobs plan.
Staff writer David Hilzenrath and polling asssistant Kenneth John contributed to this report.