Nearly every day, a tax policy debate makes the front page of newspapers—tax proposals designed to spur the economy; new tax incentives to subsidize health insurance, build low-income housing, increase charitable giving, or establish tax-favored enterprise zones; or tax boosts to support child care, help low-income taxpayers, or finance school construction. Who can be against improving the economy, helping families, or promoting good social programs? Yet there is that other perspective: who can be for higher tax rates or raising the cost of government?
Many of these debates cannot be understood without some background on the history, economics, and politics of modern tax policymaking. Countless courses on taxation and public finance teach a particular discipline and a set of skills. But this academic knowledge does not impart the driving forces behind tax changes. We cannot assume the young have learned the lessons that this history offers. This fact struck me during a talk at Swarthmore College when I likened the early tax policy of President Reagan with that of President Kennedy. All the professors in the audience nodded to acknowledge the connection I was making. The students wore blank stares. The analogy didn’t work for them because they were too young to be familiar with either half of the comparison. Yet, without some understanding of Reagan tax policy and its precedents, students will have trouble understanding the later developments. They may not understand how in practice Democrats’ opposition to tax rate cuts mainly applied to high-income taxpayers, just as their opposition to the Reagan tax cuts did 25 years earlier. The students may fail to note that an expansion of the child care credit in the first part of the 21st century came about partly because social conservatives suddenly discovered family tax policy in the Reagan era, or that what might seem revolutionary, such as tax breaks for education, has its roots in a decades-old policy trend toward putting in the tax code provisions that are unlikely to be enacted as direct expenditures.
This effort to combine the economic, political, and historical story of modern tax policy has been well received. This second edition of Contemporary Tax Policy follows upon two closely related publications—a first edition in 2004 and The Tax Decade in 1990. I am pleased by its widespread reception—by policymakers (one member of Congress has told me he carries it around as a reference), by reporters (Robert J. Samuelson indicated that it “ought to be read by every member of Congress”), by the public, and, not least, by those who are going to make tax policy tomorrow: the students in economic, law, accounting, and public policy courses where it has been adopted. Contemporary U.S. Tax Policy is, at its heart, the exciting, if not always pretty, tale of democratic decision making at its core.
A warning is required. Those looking for a simple story of triumph and defeat will be disappointed. A better analogy is chaos theory’s explanation of the weather: new and unexpected events often occur—but usually within fixed boundaries and with some degree of correlation from one time period to the next. As you will read, Congresses and presidents usually act with an amazing herd instinct—moving one more step forward or backward on a familiar path rather than shifting paths altogether. Rather than move onward toward new societal issues with forged political agreement on the old ones, our tax policy history is normally filled with attempts and reattempts to fight on familiar battlegrounds. Yet in the midst of what appears as repetitive clamor, evolution (even revolution) does occur.
The American tax system, despite its many reforms and notable efficiencies at collecting revenues, is also broken. Reforms may not be more necessary than in the past, but policymaking processes today seem incapable of the broad and comprehensive trade-offs required to make 21st century government effective. My hope is that this book will impart some ideas about how to interpret the past in ways that increase the probability that future governmental reforms can be comprehensive enough to make the tax system significantly fairer, simpler, and more efficient.
My perspective transcends that of researcher and writer. Over the course of nearly three and a half decades, I have spent close to half my time at the Treasury Department in various roles, including deputy assistant secretary of the Treasury for Tax Analysis1 and economic tax coordinator of the Treasury Department’s 1984 to 1986 Project for Fundamental Tax Reform, which led to the Tax Reform Act of 1986. I have spent the other half as a researcher at the Urban Institute, the American Enterprise Institute, and the Brookings Institution, analyzing budget and social policy issues while writing regular columns for such publications as Tax Notes magazine and the Financial Times. I also served as president (2001–2002) and board member of the National Tax Association for many years and as an editorial advisor to the Journal of Economic Perspectives for its Policy Watch series. I’ve had the privilege of learning from the best minds devoted to tax and budget issues and became well acquainted with those officials and staffers of all political stripes who “made” tax and budget policy for more than a quarter-century.
Parts of this book were first published or presented before the American Bar Association, the American Enterprise Institute, the American Tax Policy Institute, the American Law Institute, the Brookings Institution, the Internal Revenue Service, the John F. Kennedy School of Public Policy at Harvard University, The National Tax Journal, Tax Notes, the Urban Institute and, where relevant, are reprinted with permission.2
Other books cover some of the politics behind the events discussed here—especially those of the Reagan years.3 This book covers a much longer period. Its emphasis is on how the various events fit together, on the role of economic factors in the shift in the nation’s fiscal and tax structure, on how reform is organized, and on where various forces are leading tax policy. My aim is to provide enough information to allow readers to judge the trends and form conclusions, even when they differ from my own. In the end, their votes, more than anything else, will determine whether good tax policy can prevail.
Notes
1. The Office of Tax Analysis is the government’s principal office for analyzing the economics of tax issue. It works closely with tax lawyers in the Offices of Tax Legislative Counsel, International Tax Counsel, and Benefits Tax Counsel. Together, they form the Office of Tax Policy within the Treasury Department.
2. See Steuerle (1983b, 1985a, 1985b, 1986a, 1986b, 1987a, 1987b, 1988, 1990c, 1991, 1992b, 2001a, 2002e, 2002g), Steuerle and Brownlee (2003); and Steuerle and Hartzmark (1981).
3. For some political perspectives on particular events, see Regan (1988) and Stockman (1986); in addition to my own work on 1986 tax reform, see books by Birnbaum and Murray (1987) and Conlan, Wrightson, and Beam (1990) and articles by Haskel (1987), Verdier (1988), McLure (1988), Minarik (1987), and Witte (1985); some tax events of the Clinton period are covered in Waldman (2000) and Woodward (1994). A special issue of the Journal of Economic Perspectives in 1987 included work by such stalwarts as Richard Musgrave and McLure and Zodrow. For a parallel work on the evolution of the welfare state, see Howard (2006).
