What is the Tax Reform Act of 1986?

The Tax Reform Act of 1986, signed by President Ronald Reagan, was one of the most significant changes to the American federal income tax system.

How Does the Tax Reform Act of 1986 Work?

The Tax Reform Act of 1986 had several noteworthy components, not the least of which was the reduction in the number of tax brackets (from a little over a dozen down to four) and the reduction in the top tax rate (from 50% to 28%). It also eliminated the deductibility of interest on consumer loans (such as credit card debt) and reduced the amount of depreciation deductions companies could generally claim. Surprisingly, before the Tax Reform Act of 1986, taxpayers were not required to prove that the children they were claiming tax deductions for actually existed (today taxpayers must provide the child's Social Security number on the tax return).

Why Does the Tax Reform Act of 1986 Matter?

The primary objectives of the Tax Reform Act of 1986 were to simplify the American tax system, increase the number of people who pay taxes and eliminate certain tax shields.

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