Now that the N.C. General Assembly in Raleigh has approved a “sweeping” state tax reform plan, might we see something similar from Washington, D.C., within the next year? Mark Bloomfield, president of the American Council for Capital Formation, suggests in a Barron’s guest column that history suggests the answer might be yes.
Tax reform in 2014? No way! Experts said the same in 1985 and were surprised to see the Tax Reform Act of 1986 signed into law. Tax reform is a perennial interest in Washington. It rises from the ashes whenever the time is right, and no real expert should ever declare it dead.
The 1986 tax-reform effort is an interesting story with many lessons for today. The fundamental idea of lowering rates by eliminating unjustified deductions and exemptions is politically powerful.
While Americans never thought the income tax they paid was fair, comprehensive tax reform was hardly mentioned on the 1984 campaign stump. Nor was it originally on the agenda of President Ronald Reagan and the new Congress in 1985.
But tax reform was not an overnight phenomenon. Discontent was widespread in the public conversation, the business community, and the policy world. Democrats were upset with “loopholes,” and Republicans wanted lower tax rates.
Bipartisan leadership came from Reagan, Democratic Ways and Means Chairman Dan Rostenkowski of Illinois and Senate Finance Committee Chairman Bob Packwood, a Republican of Oregon. They had different political interests, but each was in search of a legacy.
Taxation is a messy and ugly legislative endeavor. Tax-cutters and revenue enhancers include idealists and pragmatists. Some seek fairness; others seek advantage for favored constituents. While everybody praises simplicity, satisfying interests creates complexity.
Despite and because of ugly backroom deals, the leaders pulled together a deal—which fell apart several times.