Tax Reform: Theory and Practice

The Tax Reform Act of 1986 is the most significant piece of tax legislation enacted since the income tax was converted to a mass tax during World War II. After decades of erosion, the individual and corporate income tax bases were broadened and the revenues were used to reduce tax rates. Loopholes and preferences that were formerly considered sacrosanct were eliminated or moderated despite the determined opposition of powerful pressure groups. Comprehensive income taxation, which had earlier been regarded as an impossible dream, carried the day with strong bipartisan support. I will trace the origins of the tax reform movement and speculate about why it was successful in 1986 after repeated failures in earlier years. I also explain what the 1986 act accomplished and what more needs to be done to achieve the objectives of comprehensive income taxation.