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THIS ARTICLE 1) EVALUATES THE TAX REFORM ACT OF 1986 (TRA) IN TERMS OF TAX REFORM CRITERIA; 2) ANALYZES THE HISTORICAL IMPORTANCE OF TRA RELATIVE TO EARLIER REFORM AND NONREFORM TAX LEGISLATION; AND 3) POSES THREE DIFFERENT EXPLANATORY MODELS FOR WHY THIS HISTORIC TAX BILL WAS ENACTED. THE AUTHOR ARGUES THAT THE 1986 LEGISLATION WAS NOT ONLY MAJOR TAX REFORM, BUT A RADICAL DEPARTURE FROM THE USUAL STANDARDS OF INCREMENTAL TAX LEGISLATION. OF THE THREE EXPLANATORY MODELS, THE AUTHOR ARGUES THAT IT IS MOST LIKELY THAT THE ACT IS A COMBINATION OF EPIPHENOMENAL EVENTS AND REACTIVE LEGISLATION, THAN A TRUE WATERSHED INDICATING A LONG-TERM CHANGE OF DIRECTION IN TAX POLICY. THE FINAL SECTION OF THE ARTICLE SUMMARIZES THE LESSONS LEARNED FROM 1986 AND OUTLINES THE IMPORTANCE OF THE VARIOUS EXPLANATIONS FOR UNDERSTANDING CURRENT CONGRESSIONAL BEHAVIOR ON FISCAL POLICY. HOW RADICAL A DEPARTURE THIS ACT WAS IS DETAILED.

This article (1) evaluates The Tax Reform Act of 1986 (TRA) in terms of tax reform criteria; (2) analyzes the historical importance of TRA relative to earlier reform and nonreform tax legislation; and (3) poses three different explanatory models for why this historic tax bill was enacted. The author argues that the 1986 legislation was not only major tax reform, but a radical departure from the usual standards of incremental tax legislation. Of the three explanatory models, the author argues that it is most likely that the act is a combination of epiphenomenal events and reactive legislation, than a true watershed indicating a long-term change of direction in tax policy. The final section of the article summarizes the lessons learned from 1986 and outlines the importance of the various explanations for understanding current congressional behavior on fiscal policy.

"The Tax Reform Act of 1986 was a powerful pro-growth force for the American economy. Equally important, as we look back on it after 25 years, we also see that it taught us two important lessons. First, it showed that politicians with very different political philosophies on the right and on the left could agree on a major program of tax rate reduction and tax reform. Second, it showed that the amount of taxable income is very sensitive to marginal tax rates.More specifically, the evidence based on the 1986 tax rate reductions shows that the response of taxpayers to reductions in marginal tax rates offsets a substantial portion of the revenue that would otherwise be lost. This implies that combining a broadening of the tax base that raises revenue equal to 10 percent of existing personal income tax revenue with a 10 percent across the board cut in all marginal tax rates would raise revenue equal to about four percent of existing tax revenue. With personal income tax revenue in 2011 of about $1 trillion, that four percent increase in net revenue would be $40 billion at the current level of taxable income or more than $500 billion over the next ten years"--National Bureau of Economic Research web site