THEN AND NOW
Why 1986 tax bill was everything 2017’s isn’t
WASHINGTON » They don’t do tax reform like they used to.
The legislation that House and Senate Republicans have embraced has revived memories of Congress’ most recent major tax overhaul three decades ago.
But the similarities tend to end there.
The Tax Reform Act of 1986 was everything this year’s version isn’t. It was the product of a year and a half of spirited deliberations. It won support from both Democrats and Republicans. Its benefits flowed more to ordinary taxpayers than to corporations and wealthy individuals. And it added nothing to the federal deficit.
Assessing the measure on its 20th anniversary, the conservative Tax Foundation said it “stands as a rare example of bipartisan support for fundamentally sound tax policy.” That was then. The 2017 tax overhaul? It was written on the fly. Congress held no hearings on the key details. The bill drew no Democratic votes. Independent analyses have said most of the gains will flow to corporations and rich individuals.
In the Senate, some provisions were scribbled onto the bill in nearly illegible hand-
writing in the final hours. Republicans released a 479page version of the bill just before the vote, leaving senators with scarcely time to absorb what was in it. Democrats complained that their information about the measure was coming mainly from lobbyists.
The Senate bill would permanently slash the corporate tax rate to 20 percent from 35 percent. By contrast, the tax cuts for individuals would expire after 2026. The measure would revamp the estate tax to cover fewer wealthy families.
The bounty from the Senate bill would go increasingly to the wealthy: In 2019, 15 percent of the tax cuts would go to the richest 1 percent of taxpayers. In 2027, their share of the benefits would rise to 62 percent, according to the nonpartisan Tax Policy Center.
By 2027, according to Congress’ Joint Committee on Taxation, households that earn under $75,000 a year would actually face a tax increase.
The House’s version contains provisions that could drastically raise taxes on financially fragile Americans, including graduate students and divorced people who pay alimony.
The Senate version would also add at least $1 trillion to the deficit over a decade — even assuming that its tax cuts rev up economic growth.
The two versions of the measure will be reconciled before a final bill goes to President Donald Trump for his signature, which Republicans hope to achieve by Christmas.
Support for this year’s tax overhaul broke down along party lines. When the House approved its version last month, Republicans backed it 227-13; Democrats rejected it 192-0. In the Senate, Republicans approved the bill 51-1; Democrats
and independents voted thumbs-down, 48-0.
Thirty-one years ago, the far-reaching tax overhaul that Congress enacted was the opposite: A thoroughly bipartisan production.
In his 1984 State of the Union Message, Republican President Ronald Reagan, responding to widespread complaints that the tax code was unfair, had directed his administration to produce a plan that would make taxes simpler and fairer for everyone.
The next year, House Democrats — led by Speaker Thomas “Tip” O’Neill and Ways and Means Chairman Dan Rostenkowski — agreed to work with Reagan, who put his Treasury Secretary James Baker on the case. The result was essentially a trade-off: The bill would cut tax rates. But to pay for those lower rates, it would also close many costly tax breaks and loopholes that corporations and wealthy individuals had long enjoyed.
“Tax reform was designed
to appeal to both Republicans and Democrats — the Democrats getting the elimination of special-interest tax breaks, the Republicans getting lower tax rates,” says Jeffrey Birnbaum, who co-wrote “Showdown at Gucci Gulch,” an account of the ‘86 tax reform. “There was something
for everybody.”
The Ways and Means Committee held 30 days of hearings on tax reform proposals. And then it spent 26 days crafting the legislation. The Senate Finance Committee held 36 days of hearings stretching over 1985 and 1986 and then spent 17 days producing its
bill.
“People knew what was in it,” says James Thurber, political scientist who founded American University’s Center for Congressional and Presidential Studies. “It wasn’t rushed through the way this one was.”
Of course, even in 1986,
nothing was easy. Corporate lobbyists sought to torpedo the bill. And it endured several near-death
experiences. But in the end, the House approved the final measure 292-136. Republicans backed it 116-62, Democrats 176-74.
Two days later, the Senate followed with a 7423 vote, with Republicans backing it 41-11 and Democrats 33-12. Reagan signed it into law on Oct. 22, 1986.
“The Cinderella team came out on top,” the president declared once it became apparent that the bill would pass.
The measure added nothing to the deficit: $120 billion in tax breaks for individuals over five years were offset by $120 billion in tax increases for business, according to the Committee for a Responsible Federal Budget, which advocates for reduced budget deficits.