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Friday, September 17, 2010

Tax Reform: Lessons from the Tax Reform Act of 1986

The Senate Finance Committee has scheduled a hearing for September 23, 2010 - Tax Reform: Lessons from the Tax Reform Act of 1986. Former Congressmen Gephardt and Archer will testify along with John Chapoton and Randall Weiss, who per The Hill (9/17/10) were assistant secretary of Treasury for President Reagan and Joint Committee on Taxation economist between 1977 and 1989, respectively.

Sounds like something some academics would plan! Are there lessons we have today from the 1986 Act versus those we learned soon after it passed? Are the lessons ones of process or the types of changes? I think there are some process lessons. For example, there were some Treasury studies leading up to reform. Those studies had some bold ideas (including discussion of a VAT in Chapter 10) - many of which could be revisited. I revisited the 1986 Act for lessons learned back in 2007 in a short article in the AICPA Tax Insider - Strategy for Major Tax Reform.

Here are some lessons on types of changes that come to mind:
  • Include inflation adjustments anytime there are tax brackets or exemption amounts, such as for the AMT.
  • Phase-in some changes to give the IRS more time to issue guidance. For example, the Section 469 passive activity loss limitation regulations are still not finalized! Many of these temporary regulations were issued before the 3-year expiration was enacted in 1988. So, 22 years later, we still have an odd set of lengthy regs consisting of temporary and final regs that are difficult to get through.

What lessons come to mind for you?

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