‘Consumption’ Levies: Pay If You Spend : Purchases of certain goods would be taxable, as opposed to the receiving of income or gifts.

Many advisers to President Clinton say the government should raise “consumption taxes”--taxing consumer spending rather than income. They see this as a way to both cut the federal deficit and raise government revenue.

Some economists would scrap the nation’s income-tax system for a broad range of consumption taxes. In such a system, personal savings accounts would be exempt from taxes until the money was withdrawn to spend on things--similar to the way the government now taxes individual retirement accounts. This would tend to encourage savings and business investment, economists say, while discouraging consumer spending. Consumption taxes, such as those on tobacco, liquor or gasoline, also can be used to discourage use.

Other economists are less enthusiastic. Consumption taxes, they say, are so successful at raising revenues they tempt the government to spend more. The taxes also have been criticized for placing a disproportionate burden on the lower and middle classes, and for fueling inflation.

Here are some questions and answers about consumption taxes:

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Question: What are examples of consumption taxes?

Answer: Strictly speaking, sales taxes are a form of consumption tax that are applied across a broad spectrum of goods. Another form is the Value Added Tax, or VAT, which is essentially a national sales tax. But the term consumption tax is most frequently used to describe excise taxes on specific goods or services, such as liquor, gasoline, hotel rooms, fine jewelry and other luxury goods, or on broader sectors of the economy, such as energy.

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Q: What are the advantages of consumption taxes?

A: Relatively small taxes can raise enormous amounts of money. A 5-cent per gallon tax on gasoline would generate more than $5 billion a year in federal revenue. And as economic activity increases, governments automatically benefit without having to pass new taxes. Boosting so-called “sin taxes” on such items as tobacco and alcohol can be easier to sell to voters than hiking income taxes. Also, consumption taxes can be easily and efficiently collected through existing systems--a cash register, gasoline pump or in monthly utility bills.

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Q: What are the drawbacks?

A: They are fundamentally regressive because any tax on basic necessities will penalize the poor and middle class more than the rich. Robert S. McIntyre, director of Washington, D.C.-based Citizens for Tax Justice, estimates that an energy tax would cost middle-income families four times as much of their total household income as the wealthy; poor families would pay eight times more. But many economists point out that consumption taxes can be adjusted to spare basic necessities, putting the biggest burden on conspicuous consumers. A bigger problem is that consumption tax revenue typically drops as an economy slows--often the time when government services are needed most.

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Q: What nations use consumption taxes?

A: Consumption taxes are common in industrialized countries. About 17% of U.S. tax revenue is raised from consumption taxes, primarily sales and excise taxes. Other U.S. consumption taxes include state and federal gasoline taxes that add an average 37 cents a gallon to the price of unleaded regular. Liquor, tobacco and luxury goods are also taxed, as are phone, electric and gas utility services. Consumption taxes are far more important to the European Community nations, which on average gain more than 30% of total tax revenue from such taxes. (These countries also have income taxes, property taxes, business taxes and such fees as auto registration.) Germans are taxed on brandy, mineral oil, tobacco, coffee, sparkling wine, sugar, tea, salt and beer. The British are taxed on liquor, tobacco, cider, cars and houses. In Hong Kong, there are taxes on oil, liquor, methanol, tobacco and cosmetics. For gasoline, Italians pay taxes equivalent to $3.58 a gallon, the French $2.82 and Germans $2.60. The Japanese pay taxes of $1.65 a gallon.

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Q: How does a VAT tax work?

A: A VAT is imposed at each stage of production and sale, from producing the raw material, to manufacture and retail sale.

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Q: Are there drawbacks to a VAT?

A: Economic downturns can drastically reduce government revenues. Also, a VAT may be less effective in a country like the United States, which has many mega-corporations that control everything from the production of raw materials to retail sale. VATs are only collected at the time that one company sells a product to another firm. In Europe’s multilayered distribution system, goods usually pass through several companies before reaching retailers. VATs can also be inflationary.

Contributing to this report were Times staff writers Joel Havemann, Tamara Jones, William Tuohy, Sam Jameson, David Lauter and special correspondent Christine Courtney.