What’s Old is New Again: Tax Reform

As you may know, an early but active debate on tax reform is underway.  My 1987 article, HOW TAX REFORM CAME ABOUT, provides a useful perspective from the time of the last successful attempt at tax reform. The situation in 1986 was different from today in many important respects – in particular, the overall budget situation was bad, but better than it is now. Still, the “1986 model” remains relevant, because many key tradeoffs – between total revenues and tax rates, among groups that enjoy tax preferences, among income groups – are inherent in any quantum change in tax policy.

Perhaps most important is the political dynamic.  Tax reform in 1986 required the cooperation of the Congress with a President whose party controlled the Senate, but did not control the House.  Still, leaders of the two parties communicated with each other, and found common ground. Policymakers came to realize that the serious faults in the then-current system gave them the potential to achieve important steps forward for many taxpayers and for the economy.

And as policymakers studied the issues, they learned that there were important advantages to a tax system with a broader, more-neutral base and lower tax rates.

The article is made available with the permission of Tax Notes, which is the original publisher.

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