President bets on VAT, but it's politically risky ON POLITICS

JACK GERMOND & JULES WITCOVER

April 16, 1993|By JACK GERMOND & JULES WITCOVER

WASHINGTON -- President Clinton's new trial balloon on using a value-added tax to finance his health care program has two significant implications.

The first is that the program, as many experts have argued all along, is going to be so expensive it cannot be financed by tinkering at the edges of the existing tax system or by moving money from under one walnut shell to another. The second is that Clinton is willing to make an extremely high-stakes political bet on the electorate's demand for better health care.

At one level, the VAT has an obvious appeal. Unlike the sales taxes imposed by states and cities, it is levied at the processing and manufacturing levels and thus is passed on to consumers indirectly. The energy tax the president has proposed to finance his economic recovery program has the same virtue of being less visible to the voter because the costs are included in prices rather than directly.

The argument that it is regressive because it falls most heavily on lower-income taxpayers, which is valid, can be met with exemptions for such necessities as food, housing and medicines. In short, the VAT can be camouflaged, at least up to a point.

But, as the Bush administration budget director Richard Darman once observed, if it walks like a duck and quacks like a duck, it is a tax, whatever you call it.

And what the president must consider is the context of the last 15 years in which Republicans -- and most particularly President Ronald Reagan -- have been enormously successful in depicting the Democrats as the party of tax-and-spend liberalism essentially unchanged from the days of Lyndon B. Johnson and the Great Society.

By contrast, candidate Bill Clinton ran last year as "a different kind of Democrat" who would give the middle class a break. The fact that he already has reversed that course and called for higher taxes on the middle class is clearly one of the factors in the decline in his approval ratings with the electorate.

But the reality is that any significant health care package will cost heavy money, at least at the outset. The costs of covering the 36 million Americans without health insurance today have been variously estimated at between $30 billion and $90 billion, depending on how rapidly the coverage is phased in and how soon some of that expense can be shifted to employers.

So what the president is betting is that the demand for some basic improvement in the health care system is substantial enough for the VAT to be accepted as worth the result. Opinion polls show that most Americans believe basic reforms are needed, but they also show that a significant majority of &L taxpayers are satisfied with their own health care coverage.

Thus, Clinton will be faced with an imposing test of his ability to sway the electorate. He must convince the voters that the higher costs at the outset eventually will pay dividends in savings for an improved and comprehensive system of health care. In short, he must ask them to accept delayed gratification, not always easy under the best conditions.

Unhappily for him, Clinton will not have those circumstances. The resistance he is meeting from Republicans and some conservative Democrats on his economic package and jobs program makes it clear that the political opposition is convinced the tax-and-spend label can be applied to this "different" Democrat.

One problem for Clinton in making that case is the pervasive skepticism and sometimes cynicism in the electorate about the intentions of the federal government. That attitude was obvious in the 19 percent of the vote Ross Perot achieved last November and it is clear today in the same opinion polls that show Clinton's approval ratings in such sharp decline.

The cautious, perhaps politically prudent, course for the new president would be to delay the health care package in the hope that a robust economy would make it easier to sell later. But Clinton also is convinced, as are many economists, that true economic health cannot be achieved so long as 14 percent of the national product is consumed by health care costs.

The bottom line, then, is that there are enormous political risks for Bill Clinton in seeking a VAT to finance his health plan. The question is whether there is not even more risk in dodging the issue.

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