Thursday, January 26, 2017
Ajay Mehrotra (American Bar Foundation & Northwestern) presents The VAT Laggards: A Comparative History of Japanese and U.S. Resistance to the Value-Added Tax (with Hiroyasu Nomura (Dokkyo University, Japan)) at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:
Since 1945 the fiscal histories of Japan and the United States have had a great deal in common. Not only have these two advanced industrial nations relied for decades on progressive income taxes as their main source of national revenue; in the process, both countries resisted for many years the global trend towards broad-based consumption taxes. Indeed, until the 1980s, Japan and the United States were among a very small group of highly developed and industrialized nations that avoided the worldwide embrace of the value-added tax (VAT) — one of the most popular forms of broad-based consumption taxes. The Japanese resistance to the VAT ended in 1989. In that year, Japan enacted a VAT and participated in the third and perhaps most widespread phase of VAT adoption across the globe. Yet, the United States has continued to resist this global trend.
This paper explores Japan’s historical resistance and the United States’ continued rejection of the VAT. It attempts to place the Japanese and American experience into a broader historical context by, first, examining the “three waves” of post-World War II VAT adoption across the globe. The paper, then, investigates several “critical junctures” in the twentieth century fiscal development of these two nations, when national consumption taxes were considered but rejected by policymakers, business leaders, and legislators. The paper’s principal aim is to use the fiscal histories of these two dominant twentieth century industrial powers to understand how and why Japan was able to overcome its long-standing historical resistance to a national consumption tax, and why the United States has continued to resist this global trend. By contrasting the Japanese and American experiences, this paper also seeks to identify the key social, political, and economic conditions under which fundamental tax reform is possible.