Learning Lessons from Tax Reform

Weekly WastebasketLearning Lessons from Tax Reform

Budget & Tax  | Quick Takes
Sep 23, 2016  | 7 min read

Taxpayers for Common Sense held a panel conversation yesterday commemorating the Tax Reform Act of 1986. The message was crystal clear:

The only path to major tax reform involves hard work by members of Congress willing to immerse themselves in substance and open their ears to the concerns of their colleagues on the other side of the aisle. In today’s political climate, that may seem like a pipedream, but that is precisely why we assembled the panel: To talk about what it takes to make change.

(From left: TCS president Ryan Alexander, Sen. Bradley, Rep. McGrath, and Jeff Birnbaum)

First, some background: The Tax Reform Act of 1986 simplified the income tax code, broadened the tax base, and eliminated many tax shelters. In a demonstration of bipartisanship hard to find today, President Reagan and a Republican-controlled Senate cooperated with a Democratic-controlled House to tackle comprehensive tax reform. Since then, Congress has enacted a myriad of piecemeal provisions that create economic inefficiencies and market distortions, cost more to administer, and make it harder for Americans to comply.

With that context in mind, four expert panelists sat down to discuss lessons learned from the tax reform effort three decades ago and the problems inherent in trying to accomplish the same thing in today’s polarized congressional environment. On one thing, they all agreed: President Ronald Reagan’s support was critical to reform of the tax code.

The panelists included former Senator Bill Bradley (D-NJ), who was a member of the Finance Committee and a major player in the 1986 passage; former Rep. McGrath (R-NY), who was a key member of the Ways and Means Committee; Janice Mays, who worked on the tax reform effort as a Ways and Means staff member and recently retired as the panel’s chief counsel and staff director; and Jeffrey H. Birnbaum, who covered the tax reform debate as a reporter for The Wall Street Journal and co-authored with Alan Murray the definitive book on the subject: Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform.

Each of the panelists focused on the need for bipartisanship if Congress is ever to replicate the success of 1986.

A “sense of bipartisanship is absolutely critical’’ to reform, Bradley declared. He said lawmakers, special interest groups, and the public need “to listen to each other’’ and not just press for their parochial needs.

Bradley laid out a prescription for success:

  • A president committed to reform;
  • A savvy Treasury Secretary who knows the subject well, can make deals, and is likewise committed to reform;
  • Willing chairs of the House Ways and Means and Senate Finance committees who see success is in their political interest;
  • Zealots that press for reform at every opportunity.
What’s the Score? Dynamic Scoring of Tax Reform Proposals

In 1986, “I was that zealot,’’ the former senator said.

Birnbaum, the former reporter, offered similar observations about the reform effort. He said it was obvious to Congress, policymakers and the public that the tax laws were broken. He cited empty skyscrapers in Texas that were built simply to get a write-off, and described how corporate interests paid no income tax. The historic legislation was not perfect but many lawmakers saw the need for reform and knew they would be blamed by constituents if they failed to act. Even lawmakers with little enthusiasm for reform did not want to be seen killing it.

Former Rep. McGrath shared important insights on bipartisanship. He said the late Daniel Rostenkowski, then chairman of Ways and Means, began courting him soon after McGrath got a seat on the committee in 1984. Dinners and personal meetings led to McGrath putting down his marker on what he absolutely needed early on to become a key Republican vote for Rostenkowski’s proposal as it moved forward. According to McGrath, the path to reform was “carefully choreographed.’’ He said that Ways and Means held frequent hearings and met almost daily with key figures in the Regan administration.

Janice Mays, the former Ways and Means staffer, echoed Bradley’s concerns about the need for bipartisanship support. Lawmakers, she said, must be “non-adversarial’’ and “need to talk to each other’’ if major tax reform is ever to pass again. Looking back 30 years, she said, lawmakers disagreed but managed to hammer out the reform legislation. She said Congress, its staffs, and the Reagan administration effectively worked together as a team to bring about the reform.

TCS president Ryan Alexander moderated the panel discussion. There were a lot of veterans of the reform effort in the audience along with staffers and advocates who are working today on reform. We held the event because Taxpayers for Common Sense’s job is not just to be a budget watchdog, but also an advocate for taxpayers. Informing today’s staff and policymakers how successful efforts like 1986 tax were done by those who made it possible is a critical to future success.

Tax policy, like federal spending, must help maximize economic growth and the benefits it provides. It also needs to generate the revenue necessary to fund the government. In pursuing comprehensive reform, Congress must evaluate each provision of the tax code. Every tax break should be eliminated and then added back into the code only if it can be justified. Every provision, whether for generating revenue or tax expenditure, should be judged by a set of criteria, including its economic efficiency, equity, simplicity, transparency, and administrability.