Senators Boost Consumption Tax Idea : Policy Would Spur Saving; Critics Cite Burden on Poor

President Clinton’s tentative move toward a broad-based energy tax received a boost Monday from a bipartisan group of senators who want him to go even further in revamping the way the federal government collects taxes.

In a letter to Treasury Secretary Lloyd Bentsen, the senators urged the Clinton Administration to adopt a tax policy that rewards savings and investment, not consumption. “We urge the Administration to be bold and propose a broad and progressive consumption-based tax policy,” the senators said.

The letter was signed by Sens. John C. Danforth (R-Mo.), a member of the tax-writing Senate Finance Committee; Pete V. Domenici (R-N.M.), ranking Republican on the Budget Committee; David L. Boren (D-Okla.), another Finance Committee member, and Sen. Sam Nunn (D-Ga.).

“What we want to do today is to encourage the Administration to think about broad-based consumption taxes and to let them know that there are people here who would be willing to work with them,” Danforth said at a news conference. “We are the only industrialized country in the world without some form of national consumption tax, and we believe that the time has come to move in this direction.”

Among them, the four previously had put together several consumption-tax proposals, and they hope that Clinton’s problems in grappling with the larger-than-expected $327-billion deficit will nudge him in their direction.

“I don’t see the massive reforms that we’re talking about any time soon,” an aide to one of the senators conceded.

Consumption taxes are similar to sales taxes, although they differ in their application. Consumption taxes generally apply to specific items or classes of goods, such as alcohol, cigarettes and gasoline. Sales taxes are usually applied broadly, with exemptions for specific items.

The senators did not propose any specific consumption taxes, but urged Clinton to consider the general concept.

Backers of such taxes say they would encourage taxpayers to save, rather than spend their earnings, making the money available for investment. Such systems are used in Germany and Japan, which are this country’s chief economic competitors and which have savings rates far greater than that of the United States.

Opponents, however, say such taxes would inevitably put a heavy burden on poor people, who are forced to spend a large proportion of their income on basic survival. Some congressional leaders have proposed granting tax credits to low-income families to reduce the burden of any new consumption taxes.

Meanwhile, as Clinton signed an executive order creating his new National Economic Council, the President said he was considering “a lot of options” and did not rule out the energy tax idea floated over the weekend by Bentsen.

“No decision has been made,” Clinton said.

White House spokesman George Stephanopoulos later suggested that Social Security cuts may also be part of the Clinton economic package.

In response to a question about the possibility of reducing Social Security benefits, Stephanopoulos told reporters: “We’ve said that entitlements are on the table along with revenues. We want to look at everything as we’re preparing this package.”

The fact that Stephanopoulos even entertained the mention of Social Security cuts is significant. Past administrations have gone out of their way to declare that reducing the benefits of the elderly, one of the nation’s most formidable lobbies, was out of the question in budget and tax negotiations.

Meanwhile, lobbying groups are already rallying their forces against the possibility of a broad-based energy tax, which had been raised by Bentsen during a television appearance Sunday.

“A broad-based tax would only punish industries such as ours, which has done its best to decrease dependence on petroleum,” Air Transport Assn. President James E. Landry wrote in a letter to Bentsen.

Stiff opposition is also likely to come from the Northeast, which is heavily dependent on oil for heating; energy-producing states, and states, such as California, where people have little public transportation and must drive to work.

Lawmakers will get another dose of bad economic news today, when Congressional Budget Office Director Robert Reischauer testifies before the Senate Budget Committee.

In testimony prepared for that appearance, Congress’ chief budget analyst predicted that the annual deficit could hit $650 billion a decade from now, unless Americans can be convinced to pay higher taxes and receive less from their government.

Separately, Clinton has decided to name Stanford University economist Joseph E. Stiglitz to the three-member Council of Economic Advisers. Stiglitz, 49, is widely admired in the economics profession for helping make the arcane science accessible.

He recently has published an introductory economics textbook that some say may become the standard work in universities. Like Clinton, Stiglitz has studied at Yale and Oxford universities. He earned his doctorate at the Massachusetts Institute of Technology.

Stiglitz joins Chairman Laura D’Andrea Tyson of UC Berkeley and Alan Blinder of Princeton University on the council.

Times staff writer John Broder contributed to this report.