Introduction

The dramatic changes in U.S. tax laws in the 1980s naturally lead one to inquire into the forces that shape and change tax policy. Two views are often implicit in informed discussions of tax policy; at the risk of simplification, these may be termed the “idealist” and the “political” view.

According to proponents of the idealist view, major changes in tax policy are driven by deep-seated normative theories or ideologies about the tax system. The 1981 tax changes were based on incentive-based supplyside theories whose antecedents range from Andrew Mellon to Arthur Laffer to the optimal-tax theorists. The 1986 tax reform, on the other hand, traces its origins to Robert Haig, Henry Simons, Joseph Pechman, Richard Musgrave, and other “tax reformers.” A possible future major shift toward consumption-based taxation would owe its allegiance to the tradition of Irving Fisher and Martin Feldstein. Proponents of this view of the formation of tax policy adhere to the dictum of John Maynard Keynes that practical men are the slaves of “defunct economists.”

The political view of tax policy emphasizes special interests, influential committee chairmen, and the pursuit of political advantage by catering to the latest reading of volatile public opinion. Birnbaum and Murray (1987) highlight the full apparatus of lobbyists and special interests in the formation of tax policy. But the best single statement of the pursuit of political advantage through tax policy comes from maneuvers between President Bush and the Democrats in the winter of 1992.