With the ink hardly dry on an economic plan calling for major tax increases, President Clinton and his top aides indicated Friday that the American people may be facing a second round of taxes in the future.
Clinton, answering questions at a town meeting in Chillicothe, Ohio, said a national sales tax or a so-called value-added tax is something that “we may well have to look at in the years ahead.” He later said such a tax, which is assessed on goods and services at the point of sale, might be considered in 10 years or so, but not in the near future.
“When we start considering it, I’ll tell you. I didn’t mean to float a trial balloon,” he told reporters in trying to deflate it.
Clinton is making the first of several swings to gain support for the economic plan he announced Wednesday, which calls for $324 billion in new revenue and budget cuts to reduce the deficit.
Clinton assured those at the town meeting that he would drop his plan to raise taxes unless federal spending was cut as well.
“I have no interest in raising a penny in taxes if we’re not going to do the cuts,” the president said.
Speaking in Washington Friday, Budget Director Leon Panetta predicted that Clinton’s health-care reform plan would require a second round of taxes a lot sooner.
Panetta predicted that the taxes to pay for the health care program would probably come from higher levies on tobacco and alcohol and other so-called sin taxes.
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Those taxes would be much more immediate, he said. Clinton plans to make his health-care proposal in May, and Congress is expected to act on it this year or early next year.
White House Chief of Staff Thomas “Mack” McLarty, in an interview, said a national sales tax could be “only one of the many possible elements of an overall health plan.” But he said a value-added tax, while it has been discussed at the White House in terms of how it is used in other countries, was not under active consideration at this point to finance the health-care program.
At Chillicothe High School, Clinton talked at length about the idea of a national sales tax, prompted by a question from a member of the audience.
While some administration officials have hinted that Clinton’s health care plan, which is still in its formative stages under the direction of Hillary Rodham Clinton, will require higher taxes, Panetta was the first top administration official to predict it outright.
In addition, some administration officials have said that once the health care plan is in place, the federal budget deficit will go down in the latter half of this decade because soaring health costs will be curbed.
“With regards to health care reform, there are some, I have to tell you, who think that you can implement health care reform and get so much savings that you can not only reduce the deficit but also pay for the expansion of health care,” Panetta said at a Senate Budget Committee hearing. “I don’t frankly believe that.”
Panetta’s statement came in response to questioning by Sen. Trent Lott (R-Miss.), who was critical of Clinton’s budget proposal, especially the new tax increases it contains. The deficit-reduction program calls for $207 billion in revenue over four years.
Lott said he was trying to “make the point that this (deficit-reduction plan) is not the end of the taxes to be proposed.”
He suggested more taxes would be needed for revamping health care.
Panetta concurred.
“It’s a little bit early to say, but I suspect that some of the sin taxes probably are going to be used for that,” Panetta said.
It was Panetta’s second round of congressional hearings and the president’s second day on the road on behalf of his economic plan.
After Chillicothe, Clinton flew to Hyde Park, New York, for a speech in the home town of President Franklin D. Roosevelt. Afterward, Clinton paid a visit to the Roosevelt home, library and museum. Accompanied by Roosevelt’s grandson, James, he placed a single red rose at the grave of Roosevelt and his wife, Eleanor.
Earlier, Clinton defended his decision to impose an energy tax, rather than a national sales tax, because, he said, the U.S. has “the lowest energy costs by far” of the world’s industrialized nations. He said he had rejected a national sales or value-added tax as too radical to be included in his economic plan right now.
A value-added tax is used in more than 50 countries. It is typically administered by taxing the total value of sales of all businesses, but allows those businesses to claim a credit for taxes paid on their purchases of raw materials and goods from other businesses. As a result, only sales to consumers end up being taxed.
In the end, a value-added tax makes the price consumers pay higher than the price sellers receive for their goods.
Clinton noted, “Almost all the countries that I know of that we compete with-advanced countries, all the European countries and Japan and Canada-have a national sales tax.”
But he said it would have to be applied fairly, probably exempting food and clothing. “You’ve got to be careful how you do it so you don’t make it a regressive tax,” he said. “But they can be designed that way, and we’re the only major (country) without one.”
Within minutes after the Chillicothe town meeting had concluded, White House press secretary Dee Dee Myers told reporters that Clinton “certainly didn’t intend to send any signals.”
Myers said Clinton was giving “an honest answer” to a question.
Clinton has a reputation as a “policy wonk” who actually has read and studied many policy issues, but he is still learning that every utterance he makes is seriously weighed for its implications.
The Congressional Budget Office estimates a 5 percent value-added tax would increase federal government revenues by about $68 billion in fiscal year 1995 and by $417 billion through 1998. With an exemption for food, housing and medical care, the value-added tax would raise $36 billion in 1995 and $217 billion over five years.