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Tuesday, October 18, 2016

30th Anniversary TRA86 - 10/22/16

President Reagan signing the Tax Reform Act of 1986 on 10/22/86
[Photo from SSA.]
Despite lots of hearings, reports, proposals and discussion on tax reform, the last major reform to our federal tax system was signed into law as the Tax Reform Act of 1986 on October 22, 1986. Thus, it's 30th anniversary is October 22, 2016!

Rationale for the TRA86 - there was

  1. Sufficient bipartisan and public support for a reformed income tax that was simpler and more supportive of economic growth.
  2. Desire for a system where all taxpayers pay their fair share.
The TRA86 reduced the top corporate and individual tax rates. The top corporate rate dropped from 46% to 34% and the top individual rate dropped from 50% to 28%. Capital gain income and regular income was subject to the same rates.

Subsequent to TRA'86, the top corporate rate increased to 35% and the top individual rate increased to 31% and then to 39.6%. 

After TRA'86 - right after, it was the first time that the corporate rate was higher than the individual rate. There was a significant shift of many corporations into partnerships and S corporations to take advantage of this new rate structure (and avoid double taxation).

I've got an article, co-authored with Jeff Porter, in the Journal of Accountancy this month on the 30th anniversary and what led to the TRA'86 and what happened afterwards - "30 years after the Tax Reform Act: Still aiming for a better tax system."

I'll have more over the next few days on various aspects of TRA'86 including some ideas of former Senator Bill Bradley who along with Congressman Dick Gephardt, had a proposal that helped support efforts that led to TRA'86, and some comments on prospects for tax reform going forward.

What do you think?

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