Should tax system encourage savings or spending?

Quietly the United States is edging into a brand of tax reform that ultimately may affect the pocketbooks of most Americans. ''No matter how you raise taxes,'' says Treasury Secretary Donald T. Regan, ''you are going to take money out of the consumption or the savings sector of the economy.''

From which sector should the tax money be drained? Should Americans be encouraged to save or to spend?

''In the long run,'' Mr. Regan says, ''we will have to have fewer taxes on savings and more taxes on consumption.''

Taxing only that part of income which is consumed, or spent, and exempting that part which is saved, experts agree, should spur Americans to save and invest more money than they do under current tax law.

A larger savings pool, according to experts, in turn would provide more capital for research and development, resulting over time in the development of new products and processes and the creation of more jobs.

''If US industry is to remain competitive,'' says Regan, ''not only with other industrial nations, but with advanced developing countries, it probably will be necessary to move toward consumption taxes.''

Equity is another goal of those favoring a simplified tax code, based on consumption taxation. The present code is riddled - like Swiss cheese, says Sen. Robert Dole (R) of Kansas - with loopholes benefiting primarily Americans at the upper end of the income scale.

As currently structured, the income tax code in some ways encourages Americans to spend money rather than save, as the following example shows:

Assume that a family has $1,000 to use. A prudent course, rooted in early American culture, would be to open a savings account. But all interest earned on that account would be taxed.

Another option is to replace the old washer and dryer with new equipment bought on an installment plan. A tax break is involved, because installment interest paid by the family would be tax exempt.

Saving the $1,000 means higher taxes for that family. The Internal Revenue Service appears to frown on savings, smile on consumption.

Put another way, tax considerations enter into the family's decision. Multiply that instance by many millions of others and the result, for the nation as a whole, is a great deal of money allocated in what may be inefficient ways.

Already, says economist Rudolph G. Penner of the American Enterprise Institute, the US is moving faster than may be realized toward embracing the concept of consumption taxes.

He cites the expanded availability of two types of accounts - the individual retirement account (IRA) and Keogh - which allow taxpayers to shelter significant amounts of income from taxation. Money deposited in these accounts, and interest earned from them, is taxed only when it is withdrawn.

But IRA and Keogh fall far short of comprehensive consumption taxation, which in its pure form, Mr. Penner says, is an effort to define the ''net savings'' of taxpayers.

Under this concept, a taxpayer would add up gross income from all sources and subtract net savings - everything invested in savings accounts, stocks, bonds, real estate, or other assets. The difference between the two would be income that was spent, or consumed. This alone would be taxed.

This simple definition hides a host of political nettles. Existing tax loopholes, each cherished by powerful interest groups, would be swept away. Taxpayers would be required to list income now exempt from taxation, such as social security payments and employer-paid medical and other insurance benefits.

This helps to explain why neither President Reagan nor Congress has rushed into a broad-based reform of the tax system. It also explains why several variants of tax reform, more or less involving consumption taxes, are under active discussion.

One is called the valued-added tax, widely used in Europe, in which a tax is imposed on a good or service at each stage of its progress toward the ultimate consumer.

Another suggestion is the flat-rate tax, in which almost all deductions, exemptions, and loopholes are abolished, simplifying the tax code, widening the tax base, and allowing a sharp reduction in marginal tax rates.

Whatever route Congress finally takes, consumption taxes definitely are - or should be - on the way, according to Regan, chief White House economist Martin Feldstein, and a number of leading experts.

To them, the benefits over the present tax system are indisputable - greater equity, nourishment of the US economy through enriched savings, and a larger supply of capital to meet budget deficits.

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