Why the US Has No VAT: Left and Right Both Say No

The United States is the only major economy in the world whose main turnover tax is a sales tax rather than a value-added tax (VAT). The anomaly is often called “American exceptionalism,” and it is no accident: it is the product of historical path dependence and political bargaining.

The VAT took shape in France in 1954 and was gradually adopted by most countries. The US, despite its reputation for tax innovation, never introduced one. Why has a country known for reinventing its tax code stayed out of this field for so long?

Left and right agree: no to a VAT

A saying often heard in Washington explains why a VAT has never taken hold: liberals fear it is regressive and would hurt low-income households, while conservatives fear it would become a money machine for “big government,” funding endless fiscal expansion. The line is often attributed to Harvard economist and former Treasury Secretary Lawrence Summers, though its provenance is uncertain. It captures both camps’ core concerns precisely.

Liberals worry that a VAT, as a consumption tax, falls more heavily on low- and middle-income families, who spend a larger share of their income. Conservatives argue from a fiscal angle: a VAT has a broad base and is efficient to collect, so once enacted it would give the government a revenue source that is easy to expand, encouraging more spending. Caught in this crossfire, the VAT has never had a firm political champion in the US.

Sales tax got there first

Beyond political resistance, timing mattered. US states began levying retail sales taxes around 1930, and by the time France’s VAT took shape in 1954, state sales tax systems were well established. Americans were in fact among the first to propose the idea of a value-added tax, but it was never implemented. By the time the VAT spread globally, the US had grown used to sales taxes, and adding a new turnover tax system seemed unnecessary administratively and socially.

That path dependence is structural as well as temporal. Sales taxes are levied by states, with rates and bases that differ from state to state, and are embedded in local fiscal systems. A VAT would typically need to be designed uniformly at the federal level, which touches the sensitive nerve of federal-state division of power.

Federal versus state power

During the George W. Bush administration in 2005, introducing a VAT was discussed, but even then observers noted that coordinating state retail sales taxes with a VAT would be a major challenge. States have considerable tax autonomy; a federal VAT would require reallocating tax authority and could trigger sharp adjustments in state finances. This federal-state conflict is another institutional barrier.

A VAT also requires businesses to record and credit taxes at every stage, demanding strong collection capacity. The existing sales tax system has run for decades, and businesses have formed compliance habits around it. Switching would mean huge transition costs, which makes little political sense.

The trade-offs

Without a VAT, the US tax system stands in sharp contrast to other developed countries. Supporters say sales taxes are transparent and levied by state governments, fitting the tradition of local self-government. Critics say the US has forgone the VAT’s advantages in reducing evasion and promoting exports, and that sales taxes are regressive too, perhaps more so, because their narrower base often means higher rates.

The debate over a VAT is fundamentally about the size of government, tax fairness and federal authority. The left and right disagree on reasons but agree on saying no, which reflects a distinctive stalemate in American politics.

Will the US ever adopt a VAT? The current political climate makes it unlikely. But as fiscal pressure mounts and tax reform debates deepen, the topic may resurface. Whether both camps’ concerns still hold will determine whether the US can move.