Mehrotra Presents The Rise And Fall Of The 1970s National VAT Today At Duke

Ajay K. Mehrotra (Northwestern; Google Scholar) presents Nixon’s VAT: Lawyers, Economists, and the Rise and Fall of the 1970s National Value-Added Tax to Fund Education at Duke today as part of its Tax Policy Seminar hosted by Larry Zelenak:

Nearly all developed countries and many in the developing world have some type of a broad-based, national consumption tax, frequently in the form of a value-added tax (VAT). These levies generate tremendous revenues that often underwrite expansive social-welfare spending, such as national healthcare, free education, and ample retirement savings – spending that mainly addresses economic inequality by promoting redistribution.

The United States is a glaring exception. While there are numerous U.S. subnational consumption taxes, in the form of state and local sales taxes, the federal government has consistently rejected broad-based national consumption taxes. Likewise, the United States has comparative low levels of direct social-welfare spending. This paper – which is part of a larger project exploring the question “why no VAT in the U.S.?” – examines the rise and fall of the 1970s national VAT aimed at funding education.

During the Richard M. Nixon presidential administration, lawmakers considered several VAT proposals and eventually recommended the adoption of a federal VAT to fund education. The revolutionary proposal would have replaced state and local property taxes with a national VAT to finance K-12 education. Although Nixon’s VAT had significant support among tax experts, policymakers, and reformers, it was eventually defeated in Congress for a variety of reasons.

This paper explores the rise and fall of Nixon’s education VAT. It identifies and analyzes the key economic, social, political, and legal conditions that gave rise to several VAT proposals in the late 1960s and early 1970s, including Nixon’s failed VAT for education. This paper also seeks to explore the broader forces, seminal events, and pivotal historical figures that resisted the VAT during this period and why these efforts were successful in rejecting this potential national revenue source. The paper focuses, in particular, on the epistemic community of tax experts – influential lawyers and economists inside and outside of government – who both supported and opposed a U.S. VAT. These experts played a fundamental role in the rise and fall of Nixon’s VAT.

The goal of this paper, and the lager project of which it is a part, is to understand the twentieth-century American resistance to comprehensive national consumption taxes. Analyzing such historical resistance may provide guidance to current experts and lawmakers about the factors that have prevented the adoption of a national U.S. VAT. Thus, exploring the rise and fall of Nixon’s VAT may shed light not only on the peculiar development of the fractured modern American fiscal and social-welfare states, but also possibilities for future tax reform.