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This Day in History: President Ronald Reagan Signs the Tax Reform Act of 1986


Posted by Adam Radman, Brendan Walsh on Tuesday, October 22nd, 2013, 1:46 PM PERMALINK


Twenty-seven years ago today, President Ronald Reagan signed into law the Tax Reform Act of 1986– which became the largest simplification of the U.S. Tax code in history. Prior to 1986, the federal tax code was a complex mess of brackets, deductions, and credits totaling over 26,300 pages.
 
Some of the laws major achievements were:

  • The reduction of the top marginal individual income tax rate from 50 percent to 28 percent
  • A reduction of the corporate income tax rate from 46 percent to 34 percent
  • Reducing the total number of income brackets from 14 to 2

While Reagan achieved a significant victory with his reforms, they did not far outlive his presidency. Starting with President H.W. Bush, the top marginal tax rate was raised from 28 percent to 31 percent. President Clinton took it a step further raising the top rate to 39.6 percent. After a brief stint at 35 percent under President George W. Bush, President Obama returned the rate to 39.6 percent.
 
Americans are once again calling for a simpler tax code, but Washington continues to ignore the issue. In fact, a recent study found the federal tax law now totals nearly 74,000 pages. The most recent estimate of the current paperwork burden generated by the Treasury Department now totals 6.7 billion hours.The value of the labor behind the 6.7 billion hour is an astonishing $206.6 billion. If this isn't alarming enough, consider that the United States now has the highest combined corporate tax rate in the developed world at nearly 40 percent. That means U.S. businesses are taxed more than any European country (yes even France, whom seemingly taxes its people for sport).
 
Sadly, much of the positive achievements signed in to law 27 years ago have been negated by adding thousands of pages that increase the complexity of the tax code, and increasing the tax burden for individuals and corporations. While we celebrate the reforms made this day in 1986, it is important to look forward and recognize that the moment for serious tax reform has arrived once again.

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