Two years ago, the Tax Cuts and Jobs Act of 2017 substantially overhauled the Internal Revenue Code. Previous reform of this magnitude last occurred with the Tax Reform Act of 1986. The circumstances surrounding the enactment of these two pieces of legislation present a case study for contrasting political philosophies and underscore why the 1986 law lasted for more than 30 years, while the days may already be numbered for the 2017 law.
Deliberation leading up to the Tax Reform Act of 1986 occurred in the wake of the early 1980s recession. Ronald Reagan was president. Republicans controlled the Senate and Democrats the House. The political tone was one of begrudging cooperation. All recognized the Internal Revenue Code needed reform, and both sides were willing to compromise for the greater good. To be sure, scoring political points was key for both parties, but was not the end goal.
On the day President Reagan signed the Tax Reform Act, the New York Times ran the headline: “A Tax Bill for the Textbooks,” and commented that “[f]or years to come, students of politics will look to the odyssey of the new tax law as a prime example of how the American system of government gets things done.” It was a protracted and belabored legislative process. After 33 days of public hearings in the House Ways and Means Committee, involving more than 450 witnesses, House Democrats considered the initial reform bill, but lacked support from all party members. It also lacked support from Republicans. The bill could have been dead on arrival, but President Reagan promised a veto if it arrived “without significant changes.” House Republicans complied and got a bill passed.
The Republican-controlled Senate began consideration of its version with an agreement that all amendments would be revenue-neutral. Any proposal that would lose revenue for the government, (e.g. new deductions or credits) would have to be offset by a corresponding increase in revenue elsewhere (e.g. raising rates or eliminating another deduction or credit). After three weeks of floor debate, the Senate gave bipartisan approval: 97-3. In a grudge match of political will and substantial give-and-take, 11 senators and 11 House representatives from both parties hashed out the final version during conference committee. President Reagan signed the law Oct. 22, 1986, surrounded by leaders from both parties. He called it “the best antipoverty bill, the best pro-family measure and the best job-creation program ever to come out of the Congress of the United States.”
The setting for the Tax Cuts and Jobs Act of 2017 was very different. A Republican in the White House and a Republican-controlled Congress provided no impetus for negotiation and compromise. The political environment was polarized, and while most agreed updates and revisions to the tax law were needed, motivation for reform seemed to be driven more by a desire to score a political win for the president and less to engage in meaningful tax reform that would last another 30 years.
Time was not a luxury that lawmakers enjoyed in 2017. The president set an arbitrary deadline: “a giant tax cut for Christmas.” This put tax reform on a rushed and partisan path. The 400-page House bill was introduced on Nov. 2, 2017. It passed through the Ways and Means Committee on a party-line vote just one week later. After another week, the House passed the bill without a single Democrat’s vote and with 13 Republicans voting against it. Not a single hearing was held.
The Senate bill was similarly rushed without a hearing. It passed out of the Senate Finance Committee on a straight party line and narrowly passed the Senate 51-49. No Democrat voted for the bill, and Tennessee Republican Bob Corker voted against it. After a hastened conference committee reconciled the two bills, the final version passed Dec. 15, 2017, and President Trump added his signature Dec. 22, 2017, surrounded only by Republican lawmakers.
The Tax Reform Act of 1986 was a bi-partisan effort that demanded sacrifice from all. No, it was not perfect, but it was good enough to remain largely intact for a generation. The Tax Cuts and Jobs Act is feebly propped up and will likely come undone when the pendulum of political power swings. Unfortunately, the precedent is now set for strictly partisan tax reform, and Democrats will be all too happy to engage in their own unilateral version, which will set the stage for a generation of uncertainty in tax laws.