Tax Reformers’ Ideas, the Expenditure-Taxation Nexus, and Comprehensive Tax Reform in the United States, 1961–1986

Abstract

This chapter discusses three episodes of federal tax reform in the United States between 1964 and 1986, and their respective success and failure. From the 1964 tax cut to 1986 tax reform, cutting tax rates and expanding tax expenditures became politically important in the legislative process of base-broadening tax reform. The revenue neutrality of the reforms proved significant to convince congressional opponents, as closing loopholes by invoking horizontal equity would serve to provide lower tax rates and tax expenditures preferred by them. The essay highlights, however, that the successful 1986 reform by the Reagan administration prompted the exclusion of principles such as vertical equity, progressivity, and the financing ability of the federal income tax system from the discussion about comprehensive tax reform.