Richard Nixon was the first president who examined the possibility of introducing a value-added tax (VAT) at the federal level in the late twentieth century. By 1970, his administration had considered recommending it alongside other domestic programs to overcome the criticism against the VAT’s regressivity, potential conflict in the federal–state tax authority, and the fragmented decision-making authority between the executive and legislative branches of the government. However, in 1971, the Nixon administration shifted their policy priority toward gaining the middle-class political support by linking local property tax relief to a federal VAT. Although they combined the two measures with a rebate to obtain consent to and confidence in them from the “opponents” among the “internalists” of policymaking and societal actors, their attempt failed to accomplish it. As a result, Nixon abandoned the federal VAT. This abandonment was a missed opportunity to introduce a federal VAT, leading the United States to become a fiscal outlier among Organisation for Economic Co-operation and Development (OECD) countries: it has not yet implemented a national/federal VAT. Furthermore, this outcome marked the origin of certain historical characteristics of the American fiscal state: the use of tax expenditures, “fend-for-yourself federalism,” weak extractive capacity, and fiscal inflexibility.

In the United States, tax favoritism—an approach that has weakened the extractive capacity of the federal government by providing tax loopholes and preferences for taxpayers—has remained since the 1930s. It has consumed the amount of tax revenue the government can spend and therefore weakened the possibility of the redistribution of fiscal resources. It has also made the federal tax system complicated and inequitable, resulting in undermining taxpayer consent. Therefore, since the 1930s, a tax reform to create a simple, fair, and equitable federal income tax system with the capacity to raise revenue has been long overdue. Many scholars have evaluated the Tax Reform Act of 1969 (TRA69), which Richard M. Nixon signed into law on December 30, 1969, as one of the most successful steps toward accomplishing this goal. This article demonstrates that TRA69 left tax favoritism in the United States. Furthermore, it points out that TRA69 turned taxpayers against the idea of federal taxation, a shift in public perception that greatly impacted tax reform in the years to follow.