Experts, Democracy, and the Historical Irony of U.S. Tax Policy : Thomas S. Adams and the Beginnings of the Value-Added Tax

In the early 1920s, legal and economic experts in the U.S. Treasury Department played a pivotal role in developing U.S. fiscal policy. As scholars have shown, the co-evolution of government institutions and scientific expertise has been fundamental to American state building. But this symbiosis has also been shaped by democratic forces. Thomas S. Adams was among the leading U.S. Treasury Department experts who recognized the links between liberal democracy and expert administration. A university professor and former Wisconsin tax administrator, Adams was one of the key architects of the World War I fiscal state. After the war, Adams proposed an innovative business tax that could have been the first U.S. broad-based, national consumption tax. Decades later, scholars would identify Adams as one of the intellectual fountainheads of the modern value-added tax (VAT) — a business-based consumption tax that has been adopted in nearly every country in the world, except the United States, and has come to underwrite expansive social-welfare spending. This article examines the historical irony of how a tax that began with an American economist has failed to take hold in the United States. It uses the U.S. rejection of Adams’s proto-VAT to explore the complex historical relationship between democracy and expertise, and to identify the enduring impact that this missed opportunity may have had on the peculiar development of the modern American fiscal and social-welfare state