For example, the mortgage-interest deduction costs the Treasury more than $80 billion a year, but it has succeeded at fostering home ownership, and few politicians would dare to cross all the millions of taxpayers who use it. Congress could limit the political risk by reducing the deduction only for top earners. Yet even that modest step could hurt the housing market, incurring the wrath not only of the affected taxpayers, but also realtors and construction workers.
Likewise, curbing the deduction for charitable contributions would be a blow to churches and other nonprofits. Go down the list of “loopholes,” and you will see a comparable story every time.
Despite such obstacles, Congress did pass a 1986 law that eliminated numerous tax shelters while lowering rates and simplifying the tax code. That measure proved that reform is possible, but its enactment hinged on circumstances that are hard to repeat.
The first was an intellectual consensus that bridged ideological lines: Supporters of reform ranged from Rep. Jack Kemp (R) of New York on the right to Sen. Bill Bradley (D) of New Jersey on the left. They agreed that the tax code rewarded individuals and businesses for gaming the system rather than contributing to economic growth and job creation.
Moreover, key leaders had unusually strong motives to move the bill. President Reagan had believed in tax reform ever since paying exorbitant rates at the peak of his movie career. Dan Rostenkowski (D) of Illinois, chairman of the tax-writing House Ways and Means Committee, wanted to prove that he was a statesman, not just a Chicago hack. Bob Packwood (R) of Oregon, chairman of the Senate Finance Committee, initially undercut the reform effort but turned around after enduring brutal criticism from the press.