When Congress Made Taxes Fairer
With President Trump now talking about overhauling the tax code, it’s worth reflecting on the last time Congress revamped the system: the Tax Reform Act of 1986.
That bill’s success relied on a clear set of principles, a committed president, an effective Treasury secretary, bipartisan support and congressional committee chairmen willing to put their reputations on the line. Few of those pieces seem in place today, and the Trump administration hasn’t even begun to face the trade-offs necessary to cut rates without increasing the deficit or widening the gap between rich and poor. But perhaps the lessons of the past show a way forward.
After World War II, federal tax rates rose steadily, loopholes proliferated, and the tax code grew more complex. By the 1980s, its unfairness was indisputable. Middle-class taxpayers shouldered the burden for the wealthy, who often paid little tax. Republicans liked lower rates, and Democrats wanted loopholes closed, but no one had put the two together. So how did we make that combination?
It took years of work. In 1983, Representative Dick Gephardt of Missouri and I introduced a tax reform bill that cut rates and closed loopholes, one I outlined in a 1984 book, “The Fair Tax.” I tried to sell the idea to Walter Mondale, the Democratic presidential nominee, but he rejected it. President Ronald Reagan, however, worried that Mr. Mondale might embrace reform and seize the initiative on cutting tax rates, so he asked the Treasury Department to study the issue and report back after the election.
The department’s first study called for rate cuts and closing loopholes. The latter was predictably savaged by special interests. A subsequent, watered-down but still useful report offered a framework based on four principles: equity, so that equal incomes paid equal taxes; efficiency, to let the market allocate resources more freely; simplicity, to reduce loopholes; and fairness, to ensure that those who have more income pay more tax. ...