Showdown at Gucci Gulch

“Gucci Gulch” is the nickname for the corridor outside the hearing room of the United States Senate Committee on Ways and Means. This is where the nation’s smoothest and most highly paid lobbyists, dressed in expensive suits and shiny Italian shoes, await decisions on legislation that will mean millions and sometimes billions to their clients. The nickname reflects insiders’ cynicism about lawmaking. Politicians need large sums of money to get reelected; the lobbyists represent the big special interests that can provide that money.

By the time of the passage of the Tax Reform Act, this cynicism about government extended to the American public as well. It was common knowledge that many of the nation’s biggest corporations and wealthiest individuals were paying little or no income tax. This seemed to offer the little man moral justification for cutting corners on his own returns. The income tax was losing its effectiveness as a means of generating government revenue.

Even with the disenchantment of the American public, the proposed Tax Reform Act probably would have gone the way of many previous tax reform proposals had it not received the strong support of President Ronald Reagan. He had repeatedly opposed tax increases but was haunted by big budget deficits. Eliminating or reducing deductions seemed to offer a way to increase revenue without increasing the tax rate. The President drew nationwide attention to the issue, which made it awkward for lobbyists and lawmakers to undermine the proposed legislation before it ever came to a roll-call vote.

The Tax Reform Act of 1986 is generally considered the most important piece of tax legislation since the introduction of the income tax in 1913. It has restored some faith in democratic government and reaffirmed the principle of taxing on the basis of ability to pay. Jeffrey H. Birnbaum and Alan S. Murray, both experienced and sophisticated reporters for THE WALL STREET JOURNAL, have done a remarkable job of explaining the complex history of this act in an entertaining fashion.