Constrained Tax Reform: How Political and Economic Constraints Affect the Formation of Tax Policy Proposals*

On November 1, 2005, the President's Advisory Panel on Federal Tax Reform (Panel) delivered its report to Treasury Secretary John W. Snow. The bipartisan Panel was organized ten months earlier by President George W. Bush to study options to reform the federal income tax system in ways that would make it simpler, fairer, and more growth–oriented. This paper discusses how the economic and political constraints faced by the Panel presented different challenges than the 1986 reform effort and resulted in a substantially different approach to tax reform. The forces that shaped the recommendations and constrained the Panel are keys to understanding the resulting plans. We explore how the policy choices underlying the various provisions of the Panel's proposals differed from those underlying the initial 1984 Treasury proposal (Treasury I) and the subsequent legislation enacted under TRA86.