Real Tax Reform is Always Hard: Some Advice for the Task Force

Reprinted with permission of Tax Analysts.

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Abstract

Political theater? Such is the label many have attached to the tax reform task force headed by Paul Volcker. But I heard the same claim made about President Reagan's State of the Union request for a tax reform study from the Treasury Department to be made only after the 1984 election was over. Congress literally burst out laughing.

Introduction

Forget the laughter. That 1984 study led to the Tax Reform Act of 1986, the most sweeping tax reform in the nation's history - and one that was bipartisan. Opportunity must be seen to be embraced.

I served as the economic coordinator and original organizer of that study. We knew from the start that if we wanted to have any impact, we had to square circles, offend many constituents, and contradict past claims of the administration itself. We lowered rates but at the same time reversed some of the base-narrowing efforts that the administration supported in 1981. We had fights with extreme supply-siders inside and outside the administration who wanted to keep negative tax rates on many investments, even with the proliferation of tax shelters and the resulting contribution to economic stagnation. And we were constantly opposed by political types everywhere, including in the White House and some departments, who either represented narrow constituencies or made the obvious but largely unhelpful objection that real reform might offend someone. And despite fears about transition costs, we moved to one of the highest real growth rates in the nation's history at that stage of an economic expansion.

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