The adoption of the Tax Reform Act of 1986 is full of uniqueness and irony. The new tax law violated all the rules of conventional wisdom built up by the tax policy fraternity. It was guided through the legislative process by personalities reversing their own past patterns of behavior, and in some cases, it might be argued, the political law of gravity. It is not clear to me whether tax reform can be a case study for similar efforts in other policy areas, or just a shooting star to savor (or, depending on one's point of view, to curse).

The goal of this paper is to explain the Tax Reform Act of 1986 and how it happened, and to give some insights into this experience and the spread of economic ideas. The first section explains where the bill fits into the spectrum of tax policy alternatives. The second section discusses how the policymakers chose this particular economic option. The third and final section describes the even more remarkable political choice: the decision to act on such a far-reaching scale.

The 1986 Tax Reform Act

There are two important aspects of the Tax Reform Act of 1986 that must be kept in mind. The first is that the law was by no means a strictly partisan effort. Among the bill's active supporters were such prominent liberals as Senator Bill Bradley (D-NJ) and such undeniable conservatives as President Ronald Reagan.