Corporate Business Activity Before and After the Tax Reform Act of 1986

important shift in Federal income tax policy. While previous tax acts provided incentives or disincentives for various business activities and industries, TRA 86 attempted to create a more "level playing field" by broadening the tax base and lowering tax rates. How-ever, while TRA 86 reduced the direct effect of the Fed-eral income tax on alternative econorruc activities, the repeal of the 50 percent net capital gains exclusion and the' General Utilities doctrine, which had allowed corpora-tions to distribute assets tax-free in liquidation in certain circumstances, increased the impact of the "double tax " on corporate earnings. These changes, coupled with the reduction of the maximum tax rate on individual tax aversp _ below the maximum tax rate on corporations, provided an,incentive for taxable corporations to elect S-corporation status or to alter their financing decisions to limit th