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The Notion of Tax Reform in Historical Perspective

President Trump's tax plan may be "great", but it will likely not be truly transformative.
Reagan Library

With the recent release of the Trump administration’s tax plan, the notion of “tax reform” is back on the U.S. political agenda. While the president’s plan is surprisingly brief, consisting mainly of bullet points on a one-page document, the rhetoric supporting the plan has been nothing short of hyperbolic. Unsurprisingly, Trump has entitled his plan “Tax Reform that Will Make America Great Again.” Trump administration officials have specifically referred to their plan as “the most significant tax reform legislation since 1986,” referring to the last comprehensive, if fleeting, U.S. tax overhaul.

Yet what constitutes true, fundamental tax reform? Most tax experts likely would agree that genuine tax reform requires some kind of transformational change to the existing tax regime. For some this could mean a significant change in the tax base, either by replacing our current income tax with some kind of consumption tax or perhaps solidifying our income tax base by removing certain cherished tax benefits.

For others, the touchstone for true tax reform is a dramatic modification of tax rates or exemption levels or both. Indeed, when tax experts today discuss tax reform they often evoke the landmark Tax Reform Act of 1986, just as Trump officials have. That law received bipartisan support, as it both lowered top marginal income tax rates and removed certain tax benefits. In the process, it solidified the income tax base.

Historians, by contrast, take a much broader perspective on the meaning of tax reform. Many scholars believe that fundamental tax reform has occurred only rarely in American history, in response to national emergencies or crises. As W. Elliot Brownlee and others have shown, the modern American tax system has been transformed mainly when historical conditions have required such profound changes—not when lawmakers have simply wished for a new tax system.