1986 Tax Reform Act Cuts Taxes for Most Taxpayers

By Rosenbaum, David E. | THE JOURNAL RECORD, March 1, 1990 | Go to article overview

1986 Tax Reform Act Cuts Taxes for Most Taxpayers


Rosenbaum, David E., THE JOURNAL RECORD


For the vast majority of Americans, the monumental Tax Reform Act of 1986 has meant slightly lower taxes and an easier time figuring them out.

But for some people, most of them well-to-do, the new law has meant much higher taxes and a nightmare of unfathomable rules and regulations.

Detailed statistics are not yet available, but this is clear: The winners include almost everyone whose income consists primarily of a wage or salary, interest and dividends.

The losers are those whose incomes are mostly from capital gains, who had invested heavily in tax shelters or who had borrowed heavily.

``My guess,'' said Fred T. Goldberg Jr., commissioner of the IRS, ``is that the overwhelming number of people are paying less. Disproportionately, those with tax increases are those making six-figure incomes.''

The law, he said, ``simplified the system for tens of millions of Americans.'' On the other hand, he acknowledged, many people who own their own businesses and some others with unusual financial arrangements face ``a staggering burden of complexity.''

The 1986 law, the most sweeping overhaul of the tax code since World War II, dramatically reduced tax rates while increasing the personal exemption and standard deduction significantly. At the same time, it raised the rate on capital gains and eliminated or curtailed scores of specific deductions, exemptions and other tax breaks. It also shifted a portion of the tax burden from individuals to businesses.

Before, there were more than a dozen different tax brackets ranging up to 50 percent. Now, there are only two basic ones, 15 percent and 28 percent, although because of a quirk in the law, a couple with a taxable income between about $75,000 and $155,000 will pay 33 percent on a portion of their income, as will a single person with taxable income of about $45,000 to $93,000.

Among the common deductions eliminated were those on sales taxes, and in most cases contributions to individual retirement accounts were no longer deductible.

Working couples are no longer entitled to a partial deduction on one of their salaries.

Deductions for consumer interest payments were phased out gradually, so that only 20 percent can be deducted on 1989 returns.

Medical and dental expenses and miscellaneous expenses such as union dues, employee business expenses and tax preparation fees had to exceed certain floors to be deductible, so few taxpayers today are entitled to deductions.

Perhaps most important in terms of tax policy, the tax shelters - investments made primarily to reduce taxes through paper losses - were virtually abolished.

Most provisions of the law went into effect in 1987. But the new rate structure was not put in place until 1988. Final data have not been compiled on who paid how much on 1988 returns, which were filed last year.

But the figures available seem to bear out Goldberg's assessment that most taxpayers pay less and find the chore of maintaining records and completing the tax forms less difficult.

For example, as a percentage of total income, the average tax owed by people with incomes between $20,000 and $30,000 slipped to 9.3 percent in 1988 from 9.7 percent in 1986. For taxpayers with incomes between $30,000 and $50,000, the average edged down to 11.1 percent from 11.5 percent.

The average also dropped for those with incomes over $100,000, to 22.2 percent from 22.8 percent. But experts say the average figure at the upper-income level is meaningless. Some affluent taxpayers owed much more and some much less in 1988 than they did in 1986.

Moreover, the higher standard deductions enable many more people to file a short form (1040A or 1040EZ), and the curtailment of deductions means that taxpayers do not have to keep as many records as were once required. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

1986 Tax Reform Act Cuts Taxes for Most Taxpayers
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.