The Tax Reform Act of 1986: Simplicity, Equity, and Efficiency

The Tax Reform Act of 1986 (TRA86) has added another chapter to the already crowded tax history of the 1980\u27s. Since the election of Ronald Reagan in 1980, the nation has seen several major tax changes: The Economic Recovery Tax Act in 1981, The Tax Equity and Fiscal Responsibility Act in 1982, and TRA86. With tax reform now well down on the list of legislative priorities (at least until next year!) it seems a propitious time for a general assessment of the structure of the federal tax system. This paper reviews TRA86 with an eye toward these issues. The order of inquiry is as follows. Section I contains a brief summary of the salient features of TRA86. This is not a comprehensive presentation of the changes in tax provisions, but simply a listing of the major changes in the personal and corporate income tax codes, along with a preview of how they affect each of our criteria. Sections II through IV examine, in order, the impact on simplicity, equity, and efficiency. In each instance, basic principles are outlined and the specific impact of TRA86 is examined. The final section is a summary with some conclusions