Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform

"Joel: Gucci Gulch is the nickname for the hall in the US Congress outside where the tax committees meet and where all the fancy lobbyists with their Gucci loafers line up. Not all of them could get into the committee room, so they’d line up outside and wait for news about what was going on. The book does sort of read like a thriller. Probably the only tax thriller there is. It’s about the months leading up to the next-to-last big income tax reform we had here in the US, which became the Tax Reform Act of 1986. It’s an interesting story about how the politics of taxation work, because a couple of years before it passed, very few people would have thought anything like it could happen. For political reasons, President Reagan commissioned the Treasury to put out a study of tax reform. They took it very seriously and came out with a three-volume study. Then it went over to Congress where, again, it just didn’t seem likely that it could pass. What it did, basically, was lower tax rates but broaden the tax base. And I would say most academics would have voted for it if it was an up or down vote. There were moments when it looked dead. And then particular characters in this drama stepped forward, and it happened. Get the weekly Five Books newsletter So that’s the background. It was the last big tax reform in the US before one in 2017. That one sharply cut revenues. The current Biden administration tax proposal would effect tax reform of a very different kind than either 1986 or 2017, as it aims to raise substantially more revenue, from corporations and rich individuals. Mick: For non-American readers Gucci Gulch is a great read, partly because of the many larger than life characters involved, from Ronald Reagan down, and partly because you learn how the sometimes puzzling US process works. And there are a ton of good stories along the way that also point to some general lessons. For example, these days it is common to present transparency as crucial in setting about tax reform. Well, some of the 1986 hearings were with TV cameras and some weren’t. And one of the main players in the reform explains how important the closed sessions were, because then the politicians could really cut the deals. They could come out and say to their lobbyists, ‘I really fought for you in there, but, gee, it just didn’t work’. So we get an inside look at the nitty gritty of how the tax deals were done. It makes you understand and think a little bit more deeply about how the process works, or can work. Joel: It was not that at all. Reagan said he wanted to lower tax rates, so that was an important part of what was eventually passed. But to pass, reform had to be pretty much a bipartisan effort. Tax rate cuts were accompanied by expansions of the tax base, with the reform as a whole supposed to be both revenue neutral and distributionally neutral, meaning it was explicitly not supposed to shift the tax burden away from the rich or toward the rich, anything like that. As I mentioned earlier, that’s very different from what we’re talking about this year in the US. Joel: It’s an amazing indication of what happened in 1986. There’s just no way to envision that kind of consensus about tax changes today. It’s just not conceivable."