Tax Reform Act Of 1986

Oh the 80s...the big hair, the falsetto music, the Tax Reform Act of 1986. It was a time when Congress decided taxes were getting a bit too hairy to deal with, and a bit unfair (not everyone can afford Farrah Fawcett and MacGyver Mullet hair with taxes that high).

The Tax Reform Act of 1986 simplified the income tax, but also made things more fair. It lowered the ceiling for the tax rate on ordinary income (the money you make at work) from 50% to 28%, and raised it on long-term capital gains (the cashmoney you make from cashing in on investments you’ve had for more than a year) from 20% to 28%. Yup—the top tax rate on income and for capital gains became the same.

It also raised the bottom tax rate for ordinary income from 11% to 15%, making the poorest of the poor pay a bit more. The Tax Reform Act of ‘86 was the first time that the top tax rate was lowered and the bottom tax rate was raised simultaneously (it was Reagan, in case you weren’t alive). There’s some other tax flair in there, such as incentivizing home ownership via mortgage deductions, and it made people start claiming their kids as dependents on their tax returns.

Corporations got a big cut, from 50% to 35%, plus new deductions that could be made for business expenses. Besides making things simpler and fairer, this tax reform was supposed to boost the economy, though the Tax Foundation and other studies have found it didn’t do much for the economy (the Tax Foundation says its nonpartisan, and is sometimes described as business-friendly or conservative). As long as we all look good in the hair department, right?