Presidential Leadership and the Reform of Fiscal Policy: Learning from Reagan's Role in TRA 86

The institutions of federal fiscal-policy making seem incapable of confronting the central domestic issues of the day. This paper presents a model of congressional decision-making in which legislators' incentives are contrary to fiscal efficiency. In such an environment, a "strong" president may be able to lead congress away from inefficient budgets. The paper specifies a model of what constitutes a strong president, namely a president with resources to build congressional coalitions and a credible veto to force "all-or-nothing" choices between reform and the inefficient status quo. President Reagan's role in the passage of the Tax Reform Act of 1986 is detailed in the light of this model; the analysis reveals the role of executive resources and the importance of the veto strategy to major fiscal reform.