Document Type

Article

Publication Title

University of Pennsylvania Law Review

Abstract

Even more peculiar than the rapid pace of 1980s tax legislation was the wildly erratic and cyclical nature of tax policy. In this country, tax policy tends to take either of two forms. First, under what I call an "instrumentalist" approach, tax law ostensibly serves social and economic policy goals (for example, increasing productivity, home ownership, or competitiveness) by providing preferential treatment for selected types of income. This approach is characterized not so much by a fixed agenda as by a willingness to use the tax system to pursue a broad array of goals. Second, the approach that in the last forty years has captured the label "tax reform" aims to tax different types of economic income more equally and to prevent high-income taxpayers from entirely avoiding significant tax liability. Although tax legislation has shown cyclical tendencies since the early days of the federal income tax, the problem reached a new level in the 1980s. In the entire history of the income tax system, the 1981 Act was the high water mark of tax instrumentalism. It provided tax incentives on a previously unheard of scale, through provisions such as sharply accelerated depreciation for capital equipment, universal individual retirement accounts (IRAs) and other savings incentives for individuals, and a host of benefits for particular industries. By contrast, the 1986 Act was the all-time leading example of tax reform. It eliminated longstanding tax preferences such as the partial exclusion for capital gains (in existence since 1921) and the investment tax credit (in existence for all but two years since 1962). Moreover, it contained an array of provisions that impeded efforts by high-income taxpayers to eliminate entirely their tax liabilities through the use of remaining preferences. Now in 1990, Congress is considering a return to instrumentalism, through restoration of a capital gains preference and savings incentives similar to those eliminated in 1986. The oscillating congressional approach would be less surprising if it had resulted from changes in the political landscape; for example, if tax instrumentalists had been defeated in the mid-1980s and then restored to power at the end of the decade. Yet, for the most part, this has not been the case. For example, President Reagan and Congressman Rostenkowski (the chairman of the Ways and Means Committee) played critical roles in shaping both the 1981 and the 1986 legislation. Senator Packwood, in 1986 the chairman of the Senate Finance Committee, started out "sort of lik[ing]" the highly preferential post-1981 law just "the way it [was]." He then spearheaded the dramatic 1986 changes, but more recently has championed the restoration of tax breaks that, as chairman, he helped eliminate. How can such erratic behavior by both institutions and individuals be understood and explained? While the tax context may be important, the question also raises fundamental issues about politics and the legislative process. This Article will therefore examine various theories concerning why Congress legislates, evaluating them both in general and as explanations for the recent course of tax legislation. My goal is to provide both a specific case study and a broader positive account of the institutional forces that shape legislation, using each to illuminate the other.

First Page

1

DOI

https://doi.org/10.2307/3312189

Volume

139

Publication Date

1990

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