SHOWDOWN AT GUCCI GULCH; Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform By Jeffrey H. Birnbaum and Alan S. Murray Random House. 309 pp. $18.95

THE LANDMARK TAX Reform Act of 1986 was possibly the ultimate case of an unlikely outcome, complete with the strangest of bedfellows, pygmies turning into giant killers, the mighty laid low and a vehicle that seemed to gather momentum with nothing for fuel. With the twin deficits in the federal budget and the trade accounts as the real fiscal crises facing the country, Congress instead heroically enacted "revenue-neutral" tax reform -- surely a solution in search of a problem.

And how could the Reagan administration, having previously presided over a massive and regressive giveaway to business in the name of supply-side incentive, turn 180 degrees and champion a record increase in business taxes? How could treasury secretary and subsequently White House chief of staff Donald Regan, formerly head of Merrill Lynch, embrace a bill that did away with the capital gains preference? How could a tiny lobby, Citizens for Tax Justice, defeat the combined power of the nation's business elite? Why did the tax writing committees, ordinarily in collusion with the special interest groups, suddenly turn into reform mongers?

Two young journalists, Jeffrey H. Birnbaum and Alan S. Murray, who covered the unfolding story for The Wall Street Journal, in Congress and at the Treasury respectively, set out to reconstruct what actually happened, and the tale they tell is riveting. Much of what makes it so pleasurable and instructive to read is the detail.

In 1984 Reagan's strategists, worried about Walter Mondale embracing tax reform, instructed a group of Treasury technicians to produce a rival plan for the president. The Treasury technicians, honest conservatives committed to the ideal of a neutral tax code, produced a blueprint ("Treasury I") that was so tough on business preferences that even George McGovern embraced it. Meanwhile, Walter Mondale, looking to business support and cautious about anything populist, flinched and failed to propose tax reform, proposing a tax increase instead. Now, Reagan, however inadvertently, had set in motion radical, populist tax reform.

The account contains splendid detail on the successive conversions of Regan, Treasury Secretary James A. Baker, his undersecretary Richard Darman, Rep. Dan Rostenkowski (D-Ill.), Sen. Bob Packwood (R-Ore.) and, eventually, all but a tiny minority of the House and Senate. There are wonderful accounts of Rostenkowski, the machine pol from a Chicago ethnic ward, grasping the crude populism latent in the president's plan, urging citizens to "write Rosty," and shrewdly securing at least half the credit for the Democrats. There is the remarkable role of Sen. Bill Bradley (D-N.J.), the first to perceive the powerful logic of trading massive loophole closings for stunningly lower tax rates, patiently tutoring House members from the sidelines, even playing his first basketball game in years with a bunch of congressional good old boys in order to keep building the tax reform fellowship. "When he played {professional} basketball," the authors shrewdly observe, "Bradley was known as one of the best in the game at moving around the court without the ball. This was an attribute that proved helpful in Congress as well."

The book also sheds more light on just how out to lunch President Reagan has been during much of his administration. Reagan's own credo, a collection of simplistic homilies about America, is a bundle of contradictions, if one bothers to press on it. Reagan himself doesn't press on it very hard, but the legislative process does. Only a man splendidly indifferent to detail could reverse course -- inadvertantly, it turns out! -- on something as fundamental as tax policy.

Reagan, for example, before embracing the rough design of Treasury I in his l985 State of the Union address, sat through a careful two-hour briefing that explained, among other things, that the plan would increase corporate taxes by $150 billion. When pressed in a Wall Street Journal interview the next day, Reagan, astonishingly professed genuine shock and surprise, denying that the plan did any such thing, and that if it did, it should be changed.

Ultimately, of course, the bill came very close to hitting exactly that number. At first, Rostenkowski, once committed to the idea, shepherded a more complex bill through the House, one that lowered the top personal tax rate from 50 percent to 38 percent and survived countless near disasters. In the Senate, the bill nearly succumbed to the Gucci Gulch of the title -- the power of the corporate lobbyists lurking in the corridors in their expensive suits and Italian shoes.

But then Packwood, up for re-election and getting a terrible press as "Senator Hackwood," went out for two pitchers of beer with his top aide, and they concocted something truly radical -- Bill Bradley's original insight. Why not go for broke and disarm all the special interest groups by proposing a top rate as low as 25 percent? The technicians were instructed to do just that, the logic proved irresistable to the politicians and the rest is history.

TO PAY FOR the rate reductions, Congress ended up slaughtering several sacred cows -- the investment tax credit, the Individual Retirement Account deduction, artificial tax shelters, even the favored treatment for capital gains. The political appeal of tax reduction took over, and the only way to pay for so massive a reduction in personal rates was to take it out of corporate hides. The old conservative saw, of course, is that ultimately corporations don't pay taxes, people do. But the populist rejoinder must be: yes, but ultimately corporations don't vote, people do. As the authors quote Richard Darman, Treasury's Svengali throughout the episode, the powerful enemies of tax reform "were brought down by the narrowness of their vision. Precisely because they defined themselves as representatives of single interests, they failed to notice their collective power."

Showdown at Gucci Gulch is worthy on several counts. This is one of those occasional journalistic books that sets out to go back and reconstruct what really happened in an important recent drama that baffled nearly everyone while it was unfolding. Too few journalists pursue this sort of exercise. It is very satisfying, both for writer and reader, because it performs jujitsu on an odd convention of press-politics relations: "Sources" tend to be extremely guarded about what is happening today, but they will blurt out wonderful indiscretions about what happened yesterday, on the mistaken assumption that nobody cares very much about yesterday's news. In the hands of skilled reporters, which surely describes Birnbaum and Murray, this is a devastating tool. Yesterday connects to today, and nearly all of the inside players whom they persuaded to sit still for extended interviews remain in the arena. For the most part, the authors let the story tell itself; one senses keen minds at work, but never intrusively.

It is perhaps churlish to find fault with a splendid book such as this one, which is far more incisive than the product of most newsrooms. The book has a compelling, gossipy quality that rescues it from the potential deadweight of the topic. Yet ultimately, I wish the authors had pursued a little less of the what and the how, and saved room for more "Why?" The book is pregnant with analytical inferences that the authors stop to note only on the run. For example, in the achievement of tax reform, the alliance of left and right combined the left's disgust with tax preferences with the right's desire for lower rates. It revealed a fatal split in the Reagan coalition between true supply siders and corporate opportunists. It showed that the rare chance to play a high-drama role in changing history often overpowers prior convictions.

Tax reform carried the day, in part as an unexpected consequence of President Reagan's revenue-neutral rule. In order to buy lower rates, you had to sacrifice loopholes. There is also a perfectly good political economist's explanation for the humiliation of the Guccis that the authors overlook. Most of the fellows in the $500 suits, whose corporate clients took such a bath from the reform, stood to gain personally from a 25 percent to 28 percent top rate. The book further demonstrates both the powerful appeal of populism in America, and also the difficulty of igniting populism inside the usual corridors of power. That point surely, merits further reflection.

Journal Washington Bureau Chief Albert Hunt's excellent introduction to this book, framing the questions, is better than the authors' own brief epilogue supplying some tentative answers. They could have paused for breath, and written a more reflective final chapter.

To be sure, the last chapter on tax policy remains to be written, and in the meantime Showdown is a classic of its genre. It will give more analytical types plenty of grist for a long time, and I doubt than anyone can add very much to the details of the story. It is illuminating and systematic enough to become a staple in political science courses, yet entertaining enough to be read this summer on the beach at Rehobeth. The frivolous title will help to stave off stares from fellow bathers.

Robert Kuttner is economics correspondent of The New Republic. His 1980 book "The Revolt of the Haves," told the story of California's Proposition 13.