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  From last wks



The Tax Reform Act of 2010

Leonard E. Burman

Published: October 23, 2006
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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Twenty years ago, President Reagan signed an amazing piece of legislation, the Tax Reform Act of 1986 (TRA 86). It rid the income tax of many loopholes, shut down (at least for a while) the flourishing tax shelter industry, and made taxes simpler and fairer for tens of millions of Americans.

While its scope was breathtaking, the true miracle was that it happened at all. Arguably, the most important player in the tax reform saga (brilliantly recounted in Jeff Birnbaum and Alan Murray's book, Showdown at Gucci Gulch) was President Reagan. The president, after he signed the bill, laughed nervously and said that he had signed his name backwards. Given that he had had lots of experience signing his name almost six years into his presidency, the admission was somewhat disturbing.

The congressional leaders, too, had issues. Ways and Means Committee Chair Dan Rostenkowski, D-Ill., the bill's main protagonist in the House, eventually ended up in jail for embezzling postage stamps. His counterpart in the Senate, Bob Packwood, R-Ore., slunk out of Congress after several female staffers recounted his improper advances.

And, of course, an army of lobbyists was lined up in opposition to the reform (the tasseled-loafer-wearing denizens of Gucci Gulch). Somehow, the public interest triumphed, even if briefly, over all the forces arrayed against it. A miracle.

Now we need another tax reform miracle — even more than we did in 1986.

In 1986 tax shelters were rampant. Rich people could engineer transactions to avoid all or most of their tax liability. Voters believed the tax system was unfair and cheating was thought to be on the rise. Those problems exist to some extent today (although tax shelters seem to be more prevalent among corporations than individuals). But the real motivation for the Tax Reform Act of 2010 is a tax and budget tsunami about to hit our shores.

Note: This report is available in its entirety in the Portable Document Format (PDF).