CandleFocus Glossary Editor
The Tax Reform Act of 1986 (TRA86) was a landmark piece of legislation that fundamentally changed the structure of the US personal and corporate tax systems. Originally proposed by President Reagan as a way to simplify taxes and lower the burden of taxation on working Americans, the Act was passed in 1986 with strong bipartisan support and remains a cornerstone of modern tax legislation.
The reforms enacted by the TRA86 had two primary objectives: simplification, and tax rate reductions. The Act eliminated many deductions and loopholes, which were believed to be unfair and complex. It replaced consequential and confusing tax codes with a much simplified structure, which was designed to increase the clarity and fairness of taxation. Rates were also reduced for all but the highest earners, to encourage greater economic growth and the expansion of the middle class.
The new code subjected a wider range of income to taxation and revised corporate taxes. A top bracket rate of 50% for individuals was reduced to 28%, while the lowest bracket rate was increased from 11% to 15%. Deductions and exemptions were also altered, with a higher standard deduction, the elimination of 2/3 of all federal deductions, and the introduction of personal exemptions.
The Act also included many other provisions, such as simplifying the Estate Tax, providing incentives for retirement savings, creating individual retirement accounts, and expanding the child care tax credit. Since its passage, the TRA86 has been one of the most successful pieces of legislation in modern history, resulting in significant savings for hundreds of millions of taxpayers.
The TRA86 is an ongoing success as it provides stability in the US tax system and ensures that every taxpayer pays their fair share of income taxes. The tax reforms enacted by the Act in 1986 continue to serve as the foundation for modern US tax laws, and are still in effect today. As a result, the TRA86 remains a shining example of the power of comprehensive tax reform and the potential for government to enact policy that serves a greater good.
The reforms enacted by the TRA86 had two primary objectives: simplification, and tax rate reductions. The Act eliminated many deductions and loopholes, which were believed to be unfair and complex. It replaced consequential and confusing tax codes with a much simplified structure, which was designed to increase the clarity and fairness of taxation. Rates were also reduced for all but the highest earners, to encourage greater economic growth and the expansion of the middle class.
The new code subjected a wider range of income to taxation and revised corporate taxes. A top bracket rate of 50% for individuals was reduced to 28%, while the lowest bracket rate was increased from 11% to 15%. Deductions and exemptions were also altered, with a higher standard deduction, the elimination of 2/3 of all federal deductions, and the introduction of personal exemptions.
The Act also included many other provisions, such as simplifying the Estate Tax, providing incentives for retirement savings, creating individual retirement accounts, and expanding the child care tax credit. Since its passage, the TRA86 has been one of the most successful pieces of legislation in modern history, resulting in significant savings for hundreds of millions of taxpayers.
The TRA86 is an ongoing success as it provides stability in the US tax system and ensures that every taxpayer pays their fair share of income taxes. The tax reforms enacted by the Act in 1986 continue to serve as the foundation for modern US tax laws, and are still in effect today. As a result, the TRA86 remains a shining example of the power of comprehensive tax reform and the potential for government to enact policy that serves a greater good.