A government kind of guy - Bill Clinton's proposed value-added tax to finance the business of government

National Review, May 10, 1993 by Brit Hume

IN Chillicothe, Ohio, on the morning of February 19, members of the traveling White House press corps awoke in motel rooms so frigid that all the heat had collected near the ceiling, refusing to descend to bed level. Many had spent the night shivering under the covers in their clothes. They had made the trip to be with the President as he began his nationwide sales campaign for his budget plan, which he and they were calling his "economic program." The day would prove memorable, and not just because of the brutal weather. Bill Clinton in the space of a few hours would say and do more to reveal himself than at perhaps any time before or since, though the extent of the day's meaning would not become clear until later.

His first event was a town meeting at the local high school, where he received a thunderous reception and conducted himself with aplomb. No surprise there, not after the dazzling performance two nights earlier in the House chamber when he had announced his program and spoken for it with unsurpassed authority and conviction, for the most part extemporaneously. He had received standing ovations in which even such Republican conservatives as Phil Gramm found themselves joining.

One of his questioners in Chillicothe asked why he had proposed an energy tax. "Why not develop a national sales tax, which would be equal to all consumers?" she asked.

Mr. Clinton plunged into his answer with gusto, speaking approvingly, almost longingly, of such a tax. "Almost every country that I know of that we compete with, advanced countries--all the European countries and Japan and Canada have a national sales tax. They call it a value-added tax." He went on to explain how a VAT works, noting that manufacturers like it because it is imposed on imported products while exports are exempt. "Now," he said, "here's why I didn't propose it right now. That is a radical change in the tax system of the United States. It is something I think we may well have to look at in the years ahead. But I did not want to confuse two different things: one is the imperative of getting the deficit down with the need to maybe change our tax system. I mean, there's only so much change a country can accommodate at the same time."

If that had been all he said, it might have been noted as the mere ruminations of an inveterate policy wonk. But after defending his energy tax, he came back to the VAT. "I do believe," he said, "that America, at another time, and maybe not too long in the future, will debate whether we want to shift the nature of our tax system because we're in a global economy. . . . You've got to be careful how you do it so you don't make it a regressive tax. But they can be designed that way, and we're the only major nation without one." Afterward, as the motorcade wended its way to the airport, the press bus was abuzz over the VAT. It looked to be the day's lead story. But Mr. Clinton made an impromptu stop at an elementary school where the children were standing outside in the arctic air to wave at him. By now, his staff had gotten wind of the press's interest, and Mr. Clinton paused at the school long enough to answer a reporter's shouted question about the VAT.

"It is not something that is now under consideration," he said firmly, "If we start considering it, I'll tell you. I didn't float a trial balloon or anything today. I was just discussing the tax in response to the question."

That unequivocal answer was good enough to knock the story down that day, but it was hardly surprising the notion of a VAT had triggered such interest. The idea has been talked about in Washington for 15 years, most conspicuously when Oregon Democratic Congressman Al Ullman, then chairman of the House Ways and Means Committee, proposed a VAT in 1979 as a way of cutting income taxes. Ullman was strongly encouraged by Charls Walker, the influential lobbyist and former Treasury undersecretary, who believed it was a sure way to further his pet cause, reducing the cost of capital to business. Because a VAT is levied on consumption, it is seen as a way to encourage saving, which adds to the capital available for investment. Ullman, who had seemed in no political danger before he started talking about the VAT, was excused from Congress by Oregon voters in 1980. Such lessons are not forgotten in Washington.

Liberals are skeptical of a VAT for the reasons cited by the President--the belief that, like sales taxes generally, it would be regressive. Conservatives fear that the VAT, being a "hidden" tax, would be politically easy to increase and would become a virtual money machine to fund ever larger government.

Nonetheless, in the weeks ahead, reports repeatedly surfaced from the health-care reform task force headed by Hillary Clinton that the VAT was being discussed as a way to finance what was turning out to be a staggeringly expensive undertaking--extending health-care insurance to all. These reports were repeatedly denied at the White House. "It is not something that is currently being discussed," said press secretary Dee Dee Myers on March 25. Communications Director George Stephanopoulos went further, saying a VAT "will not be in [the health-care] proposal." On April 13, though, Health and Human Services Secretary Donna Shalala, a close friend of both the President and Mrs. Clinton, told USA Today, almost casually, that a VAT was indeed being considered to pay for health-care reform. The President would say only that he hadn't made any decision on it. White House reporters demanded to know why the President, who had ruled that out and said, in effect, "If it changes, I'll tell you," had not done so. The answer from Dee Dee Myers was: "It's changed and we told you."