How Are You Celebrating?

October 22, 2011 | 21 comments
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No, today isn’t a national holiday. It’s not any particular religious festival. We’re more than a week away from Halloween, a month from Thanksgiving, and a couple months from Christmas. The only reason you have today off (assuming you have today off) is because today is Saturday. And yet . . .

On October 22, 1986, President Ronald Reagan signed into law the Tax Reform Act of 1986, a bipartisan bill. That law, signed 25 years ago today, was the last fundamental tax reform in which the U.S. has engaged. Among other things, it broadened the tax base, reduced the number of tax brackets, and reduced the highest tax bracket from 50 percent to 28 percent. It vastly simplified the monster that the tax code had become.

Since 1986, of course, the number of tax brackets has crept up, top marginal rates have crept up, and plenty of loopholes and special exceptions have been reintroduced into the tax law; we are arguable at a point where we again need to fundamentally rethink the tax law.

The politics of the Tax Reform Act of 1986 are absolutely fascinating. If you want to peer into the political machinations of D.C., you could do worse than reading Birnbaum and Murray’s Showdown at Gucci Gulch, a comprehensive (and fascinating) look at the people who shepherded tax reform through the process.

If you don’t have time for the book,[fn1] there are a couple great articles around the web summarizing what the Act meant and how it came through. You could read this article for a taste of the process. Or you could read any or all of these articles, if you’re really into tax reform.[fn2]

So is there any Mormon connection here? Not really; mostly, I just wanted to highlight an important, if generally forgotten, anniversary. But there were Mormons in Congress at the time. And it’s really hard, on an internet connection at home, to find voting records from 1986, but I finally did. And how did Mormons vote on the Tax Reform Act of 1986?

I may well be missing Mormon votes here: I basically just grabbed Reid and Utah politicians. So feel free, in the comments, to tell me what other Mormons voted on the Tax Reform Act. And, given that it had broad bipartisan support (including from Pres. Reagan), why so little love from Utah?

Oh, and happy Tax Reform Act Day!

[fn1] But seriously, you have time. Read it.

[fn2] Note that I haven’t read the Forbes articles yet, but I like a lot of the authors listed; the articles should all be thought-provoking, and, I assume, pretty good.

21 Responses to How Are You Celebrating?

  1. Mark B. on October 22, 2011 at 3:44 pm

    You’re showing your age. Nobody, including Mrs. Garn I suppose, called him “Edwin.” It was either “E.J. Garn” or, usually, “Jake Garn.”

  2. queuno on October 22, 2011 at 4:30 pm

    Game 3 of the World Series…

  3. Russell Arben Fox on October 22, 2011 at 4:32 pm

    Oh, let’s just throw the partisan red meat out there right at the beginning of the thread, shall we? Yes, let’s!

    Given that it had broad bipartisan support (including from Pres. Reagan), why so little love from Utah?

    Because President Reagan, in promoting and supporting this reform, was actually governing, and in so doing was breaking with the intransigent anti-government sensibility that has since come to completely dominate his party.

    Have at it, folks!

  4. Sam Brunson on October 22, 2011 at 4:33 pm

    Mark, maybe partly my age, but also the fact that I grew up in CA, not UT. So even older, I wouldn’t know Jake from Edwin.

  5. Kevin Barney on October 22, 2011 at 4:53 pm

    I lost my first job due to the Tax Reform Act of 1986.

    I graduated from the Univ. of Illinois law school in 1985 and took a job with a public finance boutique firm in Chicago. 1985 was a really big year for municipal bonds, because people knew tax reform was coming, so governments were issuing bonds left and right to try to beat it.

    But the proposals for municipal bonds were framed as being retroactive, and so while the bills were pending bond counsel could not write unqualified opinions that the interest on bonds would be tax-exempt, because they didn’t know what law would eventually end up applying. So the market screeched to a halt in 1986. A joint statement in September allowed some basic governmental bonds to be issued, but volume was extremely low that year.

    My firm was a boutique, meaning all they did was public finance, there was no diversification. They lived off the extra earnings from the big year of 1985 for much of the year, but there were basically no new revenues coming in. So eventually they had to do something, and they orchestrated a partners-only merger with a large corporate firm. Which meant I was out of a job.

    I joined a small corporate firm and did general corporate work for a couple of years. But after the TRA was in place a while, the market came back, my old partners got established in their new firm, and they were able to bring me over as an associate. And I’ve been practicing public finance law ever since.

  6. Raymond Takashi Swenson on October 22, 2011 at 5:37 pm

    There has to be some patron of T&S who was a staffer for the Utah delegation in Congress who can explain why they voted against a bill that they seem to now tegard as a major part of Reagan’s legacy. Seems very odd.

  7. Dan on October 22, 2011 at 6:03 pm

    That has got to be a record. Does anyone know of a comment from Raymong Takashi Swenson that is any SHORTER than comment #6?

  8. Last Lemming on October 22, 2011 at 7:40 pm

    Ahhh TRA-86. Those were the days. Since you brought it up, here’s my favorite tax reform story (which I remember well, but quote from this site: http://articles.latimes.com/1985-11-21/business/fi-1983_1_real-estate-tax).

    The tax code is so generous to real estate that, on the whole, investors in real estate partnerships not only have avoided paying income taxes on their investments, but they used such tax preferences in 1983 alone to shelter from taxes another $29.5 billion in income.

    Indeed, Senate Majority Leader Bob Dole (R-Kan.) recently proposed–only partly in jest–that the industry should simply be exempted from the tax code altogether. The industry was so appalled by the suggestion, Dole quipped, that “three real estate guys fainted in the back of the room.”

    In the end, the real estate industry took it in the shorts in TRA-86, but survived just fine for another 22 years.

  9. Derek on October 22, 2011 at 11:34 pm

    Sorry, but reducing the number of tax brackets does NOT “vastly simplify” the tax code. Nor does reducing the top tax tier.

    Further, you have to prove that we’re to the right of the Laffer Curve peak to show that reducing the top tier is a good thing. Since this was never done, Reagan ought to have been ashamed of himself for making changes without considering the consequences. Making up numbers out of thin air, like choosing 28% for the highest tax bracket, is NOT a good way to create legislation.

  10. Bradley on October 23, 2011 at 12:49 am

    Oh yes, I remember the Tax Reform Act of 1986. It doubled the cost of already expensive college textbooks.

    Thank you for providing a list of the dirty rats who heaped yet another burden on the backs of the poor.

    How should I celebrate? Punch out a college student?

  11. Don on October 23, 2011 at 5:54 am

    OK, it wasn’t great, but it was an effort to close loopholes and do what most people of both parties thought was best for the country. A good question is, why did Reagan want this? One answer might be that he needed to make up some of the money that was lost in his tax cuts his first year in office. If he had had his way, he would have taxed, among other things, employee benefits and the inside buildup on whole life insurance. I hate to say it, but you’ve really shattered the myth of St. Ronald here. He couldn’t get elected today.

  12. Aaron on October 23, 2011 at 6:04 am

    The Reagan tax cuts put us in a hole, so Reagan (and yes, Harry Reid) did the responsible thing and tried to get some of that money back. Contrary to what Dick Cheney said, Reagan proved that deficits do matter.

  13. Left Field on October 23, 2011 at 6:41 am

    According to your links, Paula Hawkins (R-FL), Richard Stallings (D-ID), and Mo Udall (D-AZ) voted yes. Norman Shumway (R-CA) voted no.

    I’d never heard anything but Jake. Edwin Aldrin is another Edwin better known by another name.

  14. Raymond Takashi Swenson on October 23, 2011 at 6:43 am

    Dan: I was at 30,000 feet over Omaha, trying out the in-flight WiFi, so my comments were uncharacteristically brief.

  15. Tim on October 23, 2011 at 7:08 am

    Dan, if this is a contest, comment #14 is shorter. You’re welcome.

  16. Mark B. on October 23, 2011 at 8:23 am

    Even folks in California would have heard of Jake Garn, the senator in the shuttle (Discovery, in 1985). So, it must be an age thing. Which brings us full circle to Edwin “Buzz” Aldrin.

    Makes you wonder what it is with the name Edwin–parents go to all the trouble of giving kids that name, but they never go by it.

  17. Kent Larsen on October 23, 2011 at 9:14 pm

    Also left out: Ron Packard (R-CA) voted yes

    I have a complete list, so between your original list and Left Field’s additions (comment #13) this is every Mormon voting at the time.

  18. Left Field on October 23, 2011 at 10:08 pm

    And speaking of Edwins, don’t forget Edwin Jackson, who stands to be the loser tonight.

  19. Chadwick on October 24, 2011 at 11:49 am

    Derek:

    There was much more to simplify the tax code than merely changing rates and tiers. The code was also vastly changed the corporate world as well, as their rates and base were increased at the expense of the decreases for individuals.

    One major example is that depreciation was majorly slowed down for all assets in 1986, mostly because a major real estate bubble was forseen and increasing the time to cost recovery would inevitably stall some investors to re-run their NPV calculations and back off.

    The savings and loan crisis was addressed in the change to passive losses.

    Deductions were reduced, brackets were reduced, AMT became more applicable to more individuals, tax shelters were finally addressed, the mortgage interest deduction expanded, tax benefits for pensions and IRA’s were reduced drastically, etc, and so it continues.

    It really was a major reform, regardless of your party affiliation and whether or not you agree with it.

    Kevin: Very interesting story. What with the proposed reforms being thrown around, I too wonder what the future will hold for me, a CPA. But I mostly specialize in accounting for income taxes under GAAP so I’m more curious about IFRS implementation than income tax reform per se. The fact that you rebounded makes me happy, to say the least =).

  20. Sam Brunson on October 24, 2011 at 12:31 pm

    Thanks, Chadwick. Any tax reform that happens, you should rebound: there will be taxes, no matter what the world looks like, and the will, almost inevitably, become more complex; that’s probably the biggest argument for some sort of fundamental reform—it gives us a chance to establish a better baseline again.

    And Kevin, that was interesting; I’m glad it has worked out so well for you!

  21. Dan on October 28, 2011 at 9:33 am

    hehe, Tim. too funny.