From the Archives: Federal Tax Legislation in the 1970s

August 2, 2011

Very much like politics today, thirty years ago citizens and politicians alike were railing for a reform of the U.S. tax system, which was a convoluted monolith that was neither transparent nor neutral. Three Tax Foundation Special Reports from 1973, 1974 and 1975 present the complex nature of attempting to reform the tax code and in many ways mirror the scope of discussion and hurdles for reform that we have today. These briefs document the various tax reform arguments and proposals that were being advanced in the Congress during the 1970s and help underscore the slow and unstable process of enacting lasting tax reform. (Indeed, it would not be until the mid-1980s that a semblance of comprehensive tax reform was at hand.)

It should be noted, however, that the point of this post is not to suggest that the Tax Foundation would necessarily support the reform measures suggested by Congress in these reports, but rather that the climate toward reform in the 1970s is most apropos to the debate today. Moreover, these briefs show that the movement towards comprehensive tax reform is arduous and many a time is an effort toward a shattered goal.

“Issues in Federal Tax Revision: Tax Developments in 1973”

• This report specifically outlines panel discussions and arguments before the House Committee on Ways and Means with respect to reforming the tax system.

• The main issue at question in this debate is whether the wealthy and business classes should be taxed more heavily under the new tax regimen.

• Presented are arguments from the business lobby, congressional panelists and the administration’s own tax proposals as such. The administration, in particular, championed reform that emphasized a heavier tax burden on the rich (and the closing of several loopholes and deductions), the “simplification” of the tax code through a new tax form and both a new way of treating tax deductions and increasing the scope of available tax credits.

“Issues in Federal Tax Revision: Tax Developments in 1974”

• This report outlines the final result of the Committee on Ways and Means’ reform suggestions, and the limited scope of tax reform that was actually enacted. In many ways, as explained, the “panel abandoned efforts to complete a tax bill as comprehensive as the one initially contemplated” (p. 5 of 1974 report).

• As exemplified by the limited scope of the so-called “Christmas Tree” Tax Reform Bill, much reform was left on the table and 1974 ended with very little substantive change.

“Issues in Federal Tax Revision: Tax Developments in 1975”

• This brief outlines the details of the Tax Reduction Act of 1975, whose passage largely tabled the discussion of comprehensive tax reform in the United States.

• The Tax Reduction Act of 1975 was largely a temporary measure of $21 billion worth of cuts and federal tax increase stalls to stimulate spending “to fight the recession, promote energy independence and restrain Federal spending to encourage price stability” (p. 3 of 1975 report).

• This act, due to its temporary nature and assortment of activity-manipulating deductions, largely breached the principles of sound tax policy through the use of tax gimmicks. The act exemplified how the long-term benefits of tax reform can so easily be overtaken by the possible short-term gains of further manipulation of an archaic tax code. It is worth emphasis that just two years prior, in 1973, the public was calling for massive tax reform, but as the Clinton campaign exclaimed in 1992, “It’s the economy, stupid!”

This post is part of a series highlighting Tax Foundation research from the past. Please keep in mind that government data used in these older studies may have since been revised and should not be cited.

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