The Tax Reform Act of 1986 - Term Paper Example

The tax reform act brought out two key ideas, which seemed as the motivation for the tax reform. The major idea in the tax reform act was fairness in the level of distribution of the tax burden or the overall level. The congress had considered pubic concerns of the high-income individuals who evaded tax payment and the large corporation that combine high book profits with little or no tax liability (Graetz 622). The act lowered income tax rates for both corporations and individuals. The changes in the tax reform act include changes in the time of settling of tax payments.

The tax reform does not monitor some of the behavioural responses that change the tax system. This does question the tax reform of its revenue-neutral theme. The tax reform act did upset many established interests and practices, many lobbyists and constituents seeking to block the amending of the act gathered and organized grassroots’ campaigns to lobby against the tax reform act. The opposition of the act was also seen from the divided party control of the executive and the legislative branches.

The tax reform act of the 1986 receives the praises of being the best example of a bipartisan tax reform in the American history. The act broadened the bases of both corporate and individual income taxes by getting rid of the various means of tax preferences. The top individual rate was reduced from 50 percent to 28 percent, and the top corporate tax rate decline was reduced from 48 percent to 34 percent. Prior to the passing of the tax reform act there existed a widespread disgust in the income tax system: there existed a prevalence of tax shelters this enabled the wealthy tax payers to escape much of their tax liability.

The high tax rates also hampered the economic growth because it discouraged labour supply saving and investment. The tax code was complex this resulted in high compliance,