Today’s Brew 1-20-15

☕ Jim Brown Jr. takes a look at the 1986 tax reform efforts in this column for Arkansas Business.

The Spirit of ’86

As a president who embraced supply-side economics, Reagan wanted lower marginal tax rates. He had pushed through previous tax reform efforts that had lowered rates, but as 1986 began, the top rate was still 50 percent. However, because of a variety of loopholes, many wealthy individuals and corporations paid little or no taxes. This tax avoidance infuriated some, who wanted to eliminate these tax breaks in the name of “tax fairness.”

President Reagan’s advisers put these two ideas together and came up with a plan that would eliminate many loopholes and use the resulting new revenue to lower tax rates. It would also remove many lower-income Americans from the tax rolls.

As the plan worked its way through Congress, both Democrats and Republicans changed it to preserve some loopholes. However, the final bill that emerged was a remarkable piece of legislation that, on the whole, embodied tax policy that promoted the common good instead of special interests.

In the years since the 1986 tax reform, many of its major provisions have been weakened or undone. Lobbyists have been busy in the past 28 years inserting more loopholes, deductions and credits to benefit their clients. Tax rates have also risen. Our code is far less pro-growth than it was in 1986. Few, if any, would claim that it treats all taxpayers fairly.

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