How the Tax Reform Act of 1986 Came About

In the article below, “How Tax Reform Came About,” Dr. Joseph J. Minarik provides historical context for the Tax Reform Act of 1986. In addition to explaining what that tax reform accomplished in its own right, Minarik charts how the landmark piece of legislation became law, particularly emphasizing the way in which the Economic Recovery Tax Act of 1981 set the table for tax reform in 1986. Because revenues dropped so precipitously as a result of those 1981 tax cuts, subsequent efforts became hunts for revenues, due in large part to a political climate where rate increases were deemed unacceptable. This fact turned the attention of legislators to the elimination of tax loopholes.

Spurred by the American people’s perception that the 1981 Act was biased in favor of the nation’s wealthiest taxpayers and biggest corporations, closing loopholes (without significantly raising rates) became an agreeable source of revenue for members of both parties. Minarik’s piece explains how the major players involved in the Tax Reform Act of 1986 deftly maneuvered the political landscape to ensure passage of the impressive and important piece of legislation that remains relevant today.

Dr. Minarik served as a member of the Bipartisan Policy Center’s Domenici-Rivlin Debt Reduction Task Force and is the senior vice president and director of research for the Committee of Economic Development.

​Contributions from Shai Akabas and Mac O’Brien