Tax Reform Act of 1986

Tax Reform Act of 1986

Long title	An Act to reform the internal revenue laws of the United States.
Acronyms (colloquial)	TRA
Nicknames	Tax Reform Act of 1985
Enacted by	the 99th United States Congress
Effective	October 22, 1986
Citations
Public law	99-514
Statutes at Large	100 Stat. 2085
Codification
Titles amended	26 U.S.C.: Internal Revenue Code
U.S.C. sections amended	26 U.S.C. § 1 et seq.
Legislative history
Introduced in the House as H.R. 3838 by Dan Rostenkowski (D-IL) on December 3, 1985 Committee consideration by House Ways and Means, Senate Finance Passed the House on December 17, 1985 (passed voice vote) Passed the Senate on June 24, 1986 (97-3) Reported by the joint conference committee on September 18, 1986; agreed to by the House on September 25, 1986 (292-136) and by the Senate on September 27, 1986 (74-23) Signed into law by President Ronald Reagan on October 22, 1986

The U.S. Congress passed the Tax Reform Act of 1986 (TRA) (Pub.L. 99–514, 100 Stat. 2085, enacted October 22, 1986) to simplify the income tax code, broaden the tax base and eliminate many tax shelters. Referred to as the second of the two "Reagan tax cuts" (the Kemp-Roth Tax Cut of 1981 being the first), the bill was also officially sponsored by Democrats, Richard Gephardt of Missouri in the House of Representatives and Bill Bradley of New Jersey in the Senate.

The Tax Reform Act of 1986 was given impetus by a detailed tax-simplification proposal from President Reagan's Treasury Department, and was designed to be tax-revenue neutral because Reagan stated that he would veto any bill that was not. Revenue neutrality was achieved by offsetting tax cuts for individuals by eliminating $60 billion annually in tax loopholes and shifting $24 billion of the tax burden from individuals to corporations by eliminating the investment tax credit, slowing depreciation of assets, and enacting a stiff alternative minimum tax on corporations.

The top tax rate for individuals was lowered from 50% to 28% while the bottom rate was raised from 11% to 15%. Many lower level tax brackets were consolidated, and the upper income level of the bottom rate (married filing jointly) was increased from $5,720/year to $29,750/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income. The standard deduction, personal exemption, and earned income credit were also expanded, resulting in the removal of six million poor Americans from the income tax roll and a reduction of income tax liability across all income levels. The higher standard deduction substantially simplified the preparation of tax returns for many individuals.

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