In 1986 Politics Was a Different World -- The Big Bob Packwood Tax Reform

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The Big Bob Packwood Tax Reform
The Oregon senator, who died Saturday at 93, closed loopholes and cut the top rate to 28%.
By Arthur Laffer and Stephen Moore
June 10, 2026

Forty years ago this month, the Tax Reform Act of 1986 was heading for passage in the Senate. The act defined the Reagan revolution by lowering the highest personal income-tax rate—which had been 70% in 1981—to 28%. The corporate rate was slashed from 46% to 34%. The number of individual tax brackets went from 14 to two. When the dust settled, there were two tax rates: 28% and 15%. Everything was “paid for” by nixing exceptions in the tax code covering everything from real estate to unemployment benefits and racehorses to solar energy.

Sen. Bob Packwood carried the bill to victory. Packwood, who died Saturday at 93, was chairman of the Senate Finance Committee. As Congress dithered, he took charge, sought out sensible Democrats like Sen. Daniel Patrick Moynihan of New York, Rep. Dick Gephardt of Missouri and House Ways and Means Committee Chairman Dan Rostenkowski of Illinois, and reached a deal. New Jersey Sen. Bill Bradley, a Finance Committee member, recalled his colleague’s work for the bill with these words: “Bob Packwood cajoled, threatened and persuaded others on the committee to embrace it, outmaneuvering senators who wanted higher rates and real estate lobbyists eager to protect tax shelters.”

“Let’s go radical,” Packwood told his Democratic colleagues, who joined him in cleaning out the stables of the tax code and using the savings to slash the tax rate even lower than the 35% that President Reagan had sought. Lobbyists gave up trying to fight the bill because of its epic proportions. The bill passed the Senate 97-3. “Yes” votes included Ted Kennedy, Joe Biden and Al Gore.

Yes, nearly every Democrat voted for a 28% tax rate.
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The law, on top of the 1981 Reagan tax cuts, made America a magnet for capital from around the globe. It helped launch the greatest period of wealth creation in world history over the succeeding 40 years. The Dow Jones Industrial Average closed at 1,808.35 on Oct. 22, 1986, the day Reagan signed the law. Today it is over 50,000.

Tax revenue exploded with lower tax rates. The share of taxes paid by the wealthy rose as they lost their favorite tax shelters and instead put their money to productive use. Economist Martin Feldstein, who served as chairman of the White House’s Council of Economic Advisers (1982-84), wrote on these pages in 2011 that “actual experience after 1986 showed an enormous rise in taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates.”
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