The House Blueprint and the President’s plan currently represent the primary visions for tax reform. Both would reduce tax rates for individuals and corporations (the House Blueprint caps the top individual rate at 33% and the corporate rate at 20%, while the President’s plan maxes out at 33% for individuals and 15% for corporations). Click here for a full comparison of the two plans. Although the administration’s position on revenue neutrality has not been entirely clear, the President’s nominee to head the Treasury Department, Steve Mnuchin, stated that the President’s tax plan would not increase the deficit after taking into account macroeconomic feedback and both House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) have recently reiterated their commitment to pass a revenue neutral tax reform bill by the August recess.

In order to decrease the headline tax rate in a revenue neutral way, the tax base must be broadened. This could be accomplished on the corporate side by throwing out the income tax and replacing it with a destination based cash flow tax (as discussed in a number of our recent posts available here and here), or through more incremental reforms within the existing income tax system. Base broadening within the current system requires scaling back exemptions and preferences. As noted in our prior memo, the search for base broadeners from within the income tax tends to bog down legislation by attracting opposition from the forces that protect the targeted tax expenditures.

As we await concrete proposals, here are two things that we thought you would find interesting: First, Bloomberg BNA’s Daily Tax Report has published a three-part series (available here, here and here) with excerpts from the diary of former Senator Bob Packwood (R-OR).  Senator Packwood led the charge toward the 1986 Tax Reform as then-chair of the Senate Finance Committee. His diaries provide an entertaining insider view into the horse trading that took place during the negotiations leading up to the enactment of the Tax Reform Act of 1986. Second, the chart below (adapted) from Dennis S. Ippolito’s Deficits, Debt, and the New Politics of Tax Policy, pp. 135-37 (2012), tells the story of the 1986 reform. We find this chart interesting because it shows just how much the individual and, to a lesser extent, corporate income tax rates varied from bill to bill in 1986 (and how that variation correlates with exemptions and preferences).

Chart 2