As the efforts of President Jimmy Carter to reduce tax expenditures had failed in the late 1970s, presidential candidate Ronald Reagan and the Republican Party seized the issue of tax reform. They did so by fanning public hostility to anything resembling new taxes, and in winning popular support for tax reductions. In 1981, when Reagan took charge of the White House, and the Republicans took control of the Congress, they set out to adopt Reagan's campaign platform. By 1986, they had wrought the most significant changes in the income-tax system since World War II, but in 1981 no one foresaw what the actual path of reform would be or what the final accomplishments would look like.

TAX CUTS, DEFICITS, AND TAX INCREASES

When Reagan won the Republican nomination in 1980, his campaign staff quickly turned to the analysis and drafting of tax legislation. He intended to make tax reduction the first major victory for his administration's domestic program. But as he and his staff wrestled with the details of the legislation, they had to cope with the major complication that tax cutting would increase budget deficits. The advisers disagreed among themselves as to the extent of the deficits. But most agreed that there indeed would be deficits and that unless contained, the deficits would put pressure on capital markets, raise interest costs, possibly increase interest rates, and undermine public confidence in Reagan's program.

Reagan's personal views strongly shaped how the administration implemented his campaign platform.