A Look Back At The 1986 Tax Overhaul

Last week, President Obama said that in the upcoming year, he'd like to push for a broad overhaul of the tax code. The president said he wants to broaden the tax base, close loopholes and make the system more efficient. This desire is not new in Washington. But the biggest tax overhaul in recent history occurred in 1986 in the Reagan administration. NPR's Robert Siegel takes a look back at that effort with Alan Murray, deputy managing editor for the Wall Street Journal and co-author of Showdown at Gucci Gulch: Lawmakers, Lobbyists and the Unlikely Triumph of Tax Reform, a book about the '86 tax reforms.

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ROBERT SIEGEL, host:

Last week, as President Obama was defending his tax deal with Republicans, he also spoke of another tax-related mission. He said it would involve sorting out what government does that's helpful from what isn't and figuring out how we pay for it.

President BARACK OBAMA: That's going to mean, you know, looking at the tax code and saying, you know, what's fair, what's efficient. And I don't think anybody thinks the tax code right now is fair or efficient.

SIEGEL: Making the tax code more fair and more efficient is a common ambition for a president. Back in 2004, right after his re-election, President George W. Bush said this.

(Soundbite of archived audio)

President GEORGE W. BUSH: We must reform our complicated and outdated tax code.

SIEGEL: But when people in Washington look for precedent for an overhaul of the tax code, the most recent big example was almost a quarter of a century ago. That was when President Ronald Reagan signed the Tax Reform Act of 1986 into law.

(Soundbite of archived audio)

President RONALD REAGAN: Millions of working poor will be dropped from the tax rolls altogether, and families will get a long overdue break with lower rates and an almost doubled personal exemption. We're going to make it economical to raise children again.

SIEGEL: The story of how that tax bill was passed was the subject, soon afterwards, of a book by two Wall Street Journal reporters, Alan Murray and Jeffrey Birnbaum. It's called "Showdown at Gucci Gulch," and Alan Murray joins us from New York, where he's now executive editor online for the Wall Street Journal. Welcome to the program once again.

Mr. ALAN MURRAY (Deputy Managing Editor, Wall Street Journal; Co-author, "Showdown at Gucci Gulch"): Good to be with you.

SIEGEL: And first, what did that big tax bill do back in 1986?

Mr. MURRAY: Well, it was one of the great - people talk about bipartisanship all the time. It was one of the great bipartisan achievements. What it basically did was bring down tax rates.

You know, even after the 1981 tax cuts, you still had a top tax rate of 50 percent. So rates were very high for upper-income people. It brought down tax rates, but then it made up for that by closing loopholes. So it took the money from closing loopholes and used it to pay for lower rates.

SIEGEL: What made it politically possible for, say, Ted Kennedy and Barry Goldwater to join 72 other senators in voting for this same big tax bill?

Mr. MURRAY: Yeah, it was a brilliant marriage of the political aspirations on each side of the aisle. Look, you mentioned Ted Kennedy. You had Dan Rostenkowski heading the tax-writing committee in the House. You had Ronald Reagan in the White House. Those two guys were as far apart as Nancy Pelosi and John Boehner ideologically. They came from very different parts of the spectrum.

But this was a very smart opportunity to give them both what they wanted. The Republicans of that time thought lower tax rates were the Holy Grail, and the Democrats thought that these tax breaks created huge inequity in the system, where people earning the same income might pay wildly different tax rates. So they wanted to eliminate loopholes.

And the Tax Reform Bill of '86 was a means of accomplishing both of those very partisan goals in a nonpartisan way.

SIEGEL: Looking ahead now to the coming Congress, with the Democrats still running the Senate but a new GOP majority in the House, President Obama in the White House, do the stars appear to be aligned to achieve another big rewrite of the tax code?

Mr. MURRAY: Well, they are aligned in the sense that people are looking for measures that will encourage economic growth and at the same time reduce the deficit. And so this would be a clever way to address it.

But, you know, there's something that's very different about the environment today. Partisanship is not greater, but if you go back to the mid-1980s, you had this cadre of professionals in Washington who really weren't about partisanship. They were about trying to guide their political leaders to a place that accomplished the public good.

And what I think has happened over the last 25 years is much of that cadre of professional, largely nonpolitical people in Washington has been blown up. Everybody's political in Washington these days. And that's going to make it much, much more difficult to put a deal like this together.

SIEGEL: Well, Alan Murray, thanks for talking with us about the Tax Reform Act of 1986.

Mr. MURRAY: Great to be with you to relive that bit of history.

SIEGEL: Alan Murray and Jeffrey Birnbaum wrote "Showdown at Gucci Gulch," about how that bill was passed.

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