Lawmakers, Lobbyists and the Unlikely Triumph of Tax Reform

Abstract

The tax reform act of 1986 was the most sweeping overhaul of the tax code since World War II. Targeted tax breaks worth hundreds of billions of dollars were eliminated in return for lower tax rates, higher standard deductions and larger personal exemptions. The tax bill defied much of the conventional wisdom about how Washington works. It showed that under the right conditions, our government is capable of making radical changes in policy and of favoring the general interest over the special interests. Moreover, it showed that such dramatic changes could occur despite the lack of a clear electoral mandate or of a single-party government. In this paper, we explore the possibility that the conditions leading to the passage of the tax reform act might provide insights into other legislative endeavors. Among the conditions that allowed tax reform to triumph were: the existence of a widelyrecognized public policy problem; a coalition in favor of the legislation that cut across party affiliations and ideologies; the myopia of the special interests; surprise proposals that shattered the usual political calculus; and competition between the parties.