Favors Value-Added Levy to Reduce Deficit : Stockman Calls for Major Tax Increase

A major tax increase is necessary to reduce the federal deficit, preferably a value-added tax, former federal budget director David A. Stockman said Monday.

In the five years of the Reagan presidency, great strides have been made in reducing the growth of federal spending, but the deficit remains a major threat to the nation, Stockman told the annual convention of the Food Marketing Institute.

Spending cuts have about reached the limit that the public and politicians will accept, he said, leaving a budget that most agree contains necessities and yet still costs more than government takes in.

‘Enormous Burden’

“We’re building an enormous burden on future generations that will be ruinous . . . economically and unfair and morally wrong in its long-term consequences. And so, we’re going to have to start paying our bills, finding some way to generate more revenue to pay for these things that we have collectively decided, in a political democracy, that we need,” he said.

The answer, Stockman said, is either inflation or a major tax increase.

“All taxes are not created equal,” he said. “I would not like to see income taxes raised for a moment. . . . I would not like to see the tax burden on corporations and business raised dramatically.”

So, Stockman said, “what we’re going to have to do is tax our own consumption.”

Favors Value-Added Tax

Stockman said that either “a sales tax, value added or some hybrid in between is what we’re going to have to do,” and “the value added is the best” alternative.

Widespread in Europe, value-added taxes impose a tax during production of goods based on the increase in value of the product at each step.

Value-added taxes have been discussed in Congress from time to time but have not been warmly received there since Al Ullman (D-Ore.), then chairman of the House Ways and Means Committee, lost a reelection bid at least partly because of his support for value-added taxes.

Reflecting that congressional attitude, Rep. Jack Kemp (R-N.Y.) told the same convention that he does not agree with Stockman about the need for a tax increase.

The federal deficit does not exist because the people of Buffalo, which is in his congressional district, are not taxed enough, Kemp told the convention. The public is already overtaxed, Kemp said, and the answer to the deficit is further spending cuts.