Thirty years ago this week, Ronald Reagan set in motion the process that eventually led to passage of the Tax Reform Act of 1986. Since many people believe that a similar tax reform is long overdue, it’s important to understand why the Reagan effort worked and why similar conditions do not yet exist today.

In his State of the Union Address on Jan. 25, 1984, Reagan said:

Let us go forward with an historic reform for fairness, simplicity and incentives for growth. I am asking Secretary Don Regan for a plan for action to simplify the entire tax code, so all taxpayers, big and small, are treated more fairly. And I believe such a plan could result in that underground economy being brought into the sunlight of honest tax compliance. And it could make the tax base broader, so personal tax rates could come down, not go up. I’ve asked that specific recommendations, consistent with those objectives, be presented to me by December 1984.

There was some laughter in the House chamber when Reagan said “December 1984” because it was after the election. Everyone knew that tax reform is one of those issues that is perennially popular in theory but not so much in practice.

The core problem is one that is confronted frequently in politics — the benefits of some objective are widely diffused, but the costs are concentrated. Those that bear the concentrated costs, whether from loophole closings or government spending cuts, have a powerful incentive to lobby against those changes, while those that benefit from a reduction in tax rates or the deficit don’t benefit enough to necessarily create a countervailing political force. This is especially so when the ox being gored is a well-organized industry group.

The reason tax reform worked in the 1980s is the ground had been well-plowed for the previous 20 years by those on both the right and left. It began with John F. Kennedy’s message to Congress on Jan. 24, 1963, in which he asked for a number of tax reforms along with a reduction in tax rates.

Subsequently, Congress dropped all the reforms and enacted only the rate reductions. Among those dismayed by Congress’s cavalier dismissal of tax reform was Stanley S. Surrey, the Treasury Department’s assistant secretary for tax policy. Mr. Surrey had been a professor of law at Harvard and was a longtime advocate of tax reform.

Mr. Surrey, who remained in his position through the Lyndon B. Johnson administration, thought one reason for Congress’s attitude was that it had no idea how many tax loopholes there were or how much revenue they were costing the Treasury. Many of these loopholes had been forgotten by members of the House Ways and Means Committee and Senate Finance Committee and were known only to tax specialists. Unlike appropriations, which are reviewed annually, there was little if any oversight of tax loopholes.

The Treasury staff was tasked with compiling, for the first time, a complete list of tax loopholes and figuring out their revenue cost. In a 1967 speech, Mr. Surrey referred to them as “tax expenditures” to show that there was essentially no difference between a special tax deal and a direct spending program accomplishing the same purpose.

The Treasury tax expenditures list was finally released by Treasury Secretary Joseph W. Barr in January 1969, just days before he would leave office as Richard Nixon became president. He revealed that tax expenditures cost the Treasury $50 billion per year when total federal revenues were just $150 billion. Mr. Barr also disclosed that in 1967, 155 Americans with adjusted gross incomes of more than $200,000 — about $1.4 million today – paid no federal income taxes, legally, by using tax loopholes; 21 of them had incomes of more than $1 million, about $7 million today.

In those days, Mr. Barr’s revelations constituted a scandal that led Congress to enact the Tax Reform Act of 1969, which, among other things, instituted a minimum tax to prevent the wealthy from legally avoiding income taxes altogether. Although the alternative minimum tax is still on the books, the number of high-income individuals with no income tax liability is vastly higher today. In 2010, there were 19,000 tax filers with at least $200,000 of adjusted gross income who legally avoided any federal income tax liability, according to the Internal Revenue Service.

In 1974, Congress required the Treasury Department to prepare an annual tax expenditures list that is published in the budget. In 1976, it enacted another bill to further close tax loopholes. Jimmy Carter sent yet another tax reform bill to Congress in 1978, but it had lost interest in the subject; by then, tax reform simply meant increasing taxes and Congress was becoming increasingly interested only in tax cuts.

After passage of Proposition 13 in California on June 6, 1978, even Democrats began pushing pro-growth tax cuts, such as a cut in the capital gains tax, which had been raised in the 1969 tax reform. The 1978 legislation restored the pre-1969 tax treatment of capital gains, reducing the maximum rate to 28 percent from 35 percent. President Carter threatened a veto because of this, but nevertheless signed the legislation on Nov. 6, 1978.

The fundamental reason for the decline of tax reform in the late 1970s was one thing: inflation. It raised the nominal incomes of many families solidly in the middle of the income distribution to levels that, in dollar terms, made them very well to do — and they were taxed as such.

By 1978, a family of four with the median income made $20,428 — more than a family with twice the median income had made a decade earlier. According to the Tax Policy Center, between 1965 and 1978, the average federal income tax rate on the median family rose four percentage points to 11.1 percent from 7.1 percent, an increase of 56 percent. Its marginal rate — the tax on each additional dollar earned — rose to 25 percent from 17 percent.

This made average people receptive to tax policies that would have benefited only the rich just a few years earlier.

Next week I will continue the story of how the Tax Reform Act of 1986 came to be.

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take.”