Senators reflect on 1986 tax reform in effort to repeat history

By Sarah Gonzalez

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WASHINGTON, Feb. 10, 2015-The Senate Finance Committee held a hearing Tuesday on the Tax Reform Act of 1986 - the most recent major simplification of the tax code -- as members looked to the past for inspiration.

Chairman Orrin Hatch, R-Utah, said the 1986 legislation, signed into law by President Ronald Reagan, simplified a costly and complicated tax system. “Over time, our tax system has once again become costly and complex, impeding growth, standing in the way of shared prosperity, and placing American workers and businesses at a disadvantage,” Hatch said.

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The committee chair in 1986, former Sen. Bob Packwood, R-Ore., testified on his leadership of the 1980's tax code overhaul, alongside former committee member and New Jersey Democrat Bill Bradley. The questioning was focused on the former senators' insights on gaining bipartisan support for tax reform, and how to apply that insight to today's challenges.

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“This insanely complicated tax code plays right into the hands of special interests” said committee ranking member Ron Wyden, D-Ore. “Simplicity is going to be hugely important.”

In negotiating the 1986 tax reform bill, Reagan insisted on revenue neutrality, which Democrats and Republicans in Congress tried to follow by decreasing individual income tax rates and eliminating billions in tax loopholes, while also increasing corporate and capital gains taxes. 

Bradley insisted that presidential leadership is “essential” to a successful tax overhaul. Packwood added that Reagan made tax reform a priority, which was “extremely helpful, because “we knew we had his backing, absolutely.”  

Bradley also said that having a treasury secretary in sync with the White House is vital in the negotiations process. The tax deal in 1986 was possible, he said, because the president, his treasury secretary, the House Ways and Means chairman and Packwood (the Senate Finance Committee chair) were all committed to reaching a deal.

Both Bradley and Packwood recommended combining corporate and individual tax reforms in one piece of legislation.

“If you just do corporate, it's not like you're going to have an easy path,” Bradley said. “The key was constructing a coalition that included a significant part of business. That's very important.”

Among possibilities for today's Congress, Packwood suggested finding a way to increase revenue through consumption taxes, like an electronic funds transaction tax, but also significantly cutting corporate and individual income taxes. Similarly, Bradley suggested “taxing less the things we like - wages -- and taxing more the things that are bad for us - pollution.” For example, he suggested phasing-in a gasoline tax while also reducing individual and corporate taxes.

“I take your ideas and try to put them into today's politics ... and that's much more difficult,” said Sen. Bill Nelson, D-Fla.

Both former senators said if Democrats in Congress today can't agree to reduce some taxes, and Republicans can't agree to increase revenue, “you should spend some time doing something else.”

Meanwhile, the House of Representatives is planning to take up a pair of bills later this week that would permanently extend the Section 179 allowance, with inflationary adjustments, as well as a charitable tax deduction for donations of food. Section 179 expensing allowance is widely used by farmers to write off purchases of combines and other farm equipment.

The bills have no chance of becoming law as they are. Despite their political popularity, most Democrats are likely to vote against them. The White House on Tuesday threated to veto both pieces of legislation. The tax breaks are among a series of popular provisions that Congress has been extending only on a temporary, one-year basis.

During today's hearing there was no mention of Packwood's 1995 resignation from the Senate amid allegations of sexual assault and abuse of women. Neither of the two women on the committee, Democrats Debbie Stabenow of Michigan and Maria Cantwell of Washington, participated in questioning the witnesses.

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