The Tax Reform Act of 1986: Its Effect Business And Individuals

Kelly R. Green

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The Tax Reform Act of 1986 represents the m::>st massive revision in the history of tax law. It provides for major reductions corporations. in the top tax rate for both individuals and The individual top rate for 1988 will be the lowest since 1931. The tax burden on corporations has become stiffer after being relaxed for 20 years. In addition, the Act repeals or limits many of the tax credits and deductions that encourage certain kinds of investment, particularly those that taxpayers use to avoid paying taxes. The new tax code no longer uses steeply progressive tax rates, and therefore, does not significantly redistribute the tax burden between high- and middle-income taxpayers. However, it compensates for this by limiting the tax preferences heavily used by high-income taxpayers. On the lower end of the spectrum, the Act reduces the tax burden on poor families by removing than fran tax rolls. These provisions were made with the goal of simplifying the tax syste.'Tl and making it more fair for all taxpayers.