Showdown at Gucci Gulch

American journalists Jeffrey Birnbaum and Alan Murray’s book on the United States Tax Reform Act of 1986, Showdown at Gucci Gulch (1987), details the development and passage of the Act, ultimately signed by President Ronald Reagan, which slashed the ordinary tax rate owed by millionaires and billionaires from 50 percent to 28 percent. Laws passed later by Presidents Clinton and Obama moderated the huge tax break to the wealthiest people in America. The title refers to the colloquial name for the hallway outside the room in which the Senate Committee on Ways and Means conducts hearings. The name both caricatures the lobbyists that sit in this hallway on behalf of the huge corporations they serve, to await the outcomes of hearings—often wearing extravagant and expensive attire—and echoes lawmakers’ cynical views on the failing fight against lobbyists. Aside from explaining the passage of the Act, the authors show how politicians in the United States are beholden to the special interests that ultimately fund their campaigns for reelection.

The authors begin by outlining the history of income taxes in the United States. In the late 1800s, the U.S. government made most of its money by imposing tariffs on international trade and sales taxes on everyday goods. This strategy, like most tax strategies in United States history, posed a disproportionate burden on poor people, for whom sales tax charges represented a higher percentage of their overall income. In 1895, the politician William Jennings Bryan nearly got a law passed that would have instituted the first income taxes. His attempt was ultimately blocked by the Supreme Court, which ruled that the tax was unconstitutional. In 1913, the Sixteenth Amendment of the Constitution was ratified, and in its ratification, the first income tax was implemented. The new tax was made possible in part because of anxiety about the difficulty of funding World War I. It was sustained through World War II for similar reasons.

In the 1940s and 1950s, when international war no longer seemed perpetually about to happen, the government implemented a tax reduction in a novel form. This time, it didn’t simply reduce the tax rate; rather, it systematically handed out tax breaks to people and entities who met various conditions. The tax break paradigm created lots of disagreement among economists and the American public. In the 1970s, record inflation rates tipped the scales in the discourse surrounding the tax breaks, forcing Congress to further modify tax policy. When the 1986 bill was first proposed, it went through several years of virulent opposition.



The authors give a full breakdown of the chronology of the bill. In 1982, Democratic senators first proposed it as the Fair Tax Act. In 1984, President Reagan allocated Treasury resources to study the implications of tax reform, noting it in his famous State of the Union Address that year. The “Republican” iteration of the bill had heavy modifications but kept the core premise of relieving the tax burden on the middle class. Ultimately, a Democratic House and Republican Senate passed the act, thanks in large part to the House’s Ways and Means Chair. Secretary of the Treasury James Baker is also credited with helping to get the bill passed. Interestingly, tax reform had been thought of as too complex and partisan to accomplish. The authors suggest that, paradoxically, the bill succeeded largely because the House and Senate were split. Where the branches of government clashed and bickered ineffectually, lobbyists stepped in and succeeded in adding huge tax breaks to the super-rich before Reagan signed the bill.

Birnbaum and Murray conclude by asserting that the Tax Reform Act probably would have failed had it not garnered the strong support of President Reagan. Reagan opposed tax increases but knew that he needed some way of increasing government revenue. He saw reducing tax deductions as a way of reducing this budget deficit. As a result, Reagan helped champion what is viewed as the most important tax law since the income tax was introduced in 1913.