Tax Reform Act Of 1986

AAA

DEFINITION of 'Tax Reform Act Of 1986'

A law passed by the United States Congress to simplify the income tax code. The Tax Reform Act of 1986, commonly referred to as the second of two Reagan tax cuts, lowered the top tax rate from 50% to 28% and raised the bottom tax rate from 11% to 15%. This was the first time in U.S. income tax history that the top tax rate was lowered and the bottom rate was increased at the same time. The act also mandated that capital gains would be taxed at the same rate as ordinary income.

INVESTOPEDIA EXPLAINS 'Tax Reform Act Of 1986'

In addition to altering the tax brackets, the Tax Reform Act of 1986 eliminated certain tax shelters: It required people claiming children as dependents to provide Social Security numbers for each child on their tax returns, it expanded the Alternative Minimum Tax and increased the Home Mortgage Interest Deduction to incentivize homeownership. The bill was sponsored by Richard Gephardt (D-MO) in the House of Representatives and Bill Bradley (D-NJ) in the Senate.

RELATED TERMS
  1. Social Security Number - SSN

    A nine-digit number assigned to citizens, some temporary residents ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Formal Tax Legislation

    The process by which a proposed tax rule or tax change may become ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. American Jobs Creation Act Of 2 ...

    Legislation that became effective in October of 2004, which is ...
  6. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
RELATED FAQS
  1. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  2. How is a savings account taxed?

    In the United States, the Internal Revenue Service considers interest earned in a savings account to be taxable income. Taxpayers ... Read Full Answer >>
  3. What are the differences between absorption costing and variable costing?

    Absorption costing includes all costs, including fixed costs, in figuring the cost of production, while variable costing ... Read Full Answer >>
  4. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
  5. Can a Limited Liability Company (LLC) issue stock?

    A limited liability company, or LLC, cannot issue stock. Instead, an LLC is structured to have single or multiple owners ... Read Full Answer >>
  6. Does the tradeoff model or the pecking order play a greater role in capital budgeting?

    The static trade-off theory and the pecking order theory are two financial principles that help a company choose its capital ... Read Full Answer >>
Related Articles
  1. Taxes

    Changes In Tax Legislation And Regulation

    Keeping on top of these amendments can help you avoid penalties and take advantage of benefits.
  2. Home & Auto

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  3. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  4. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  5. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  6. Economics

    Why Working Doesn't Add Up For Many Women

    A type of tax deduction for Japanese stay-at-home wives puts a barrier on women working full time in the country.
  7. Economics

    Chinese Opportunities For A Changing Child Policy

    China's one-child policy is changing, and investors are looking for ways to cash in. The reform might not have the effects that many anticipate, however.
  8. Taxes

    Tea Party Vs. Republican Party: Who Will Win In 2016?

    What agendas define the rift between the Tea Party and the Republican establishment, and which side will win the presidential nomination in 2016?
  9. Home & Auto

    What Are The Tax Advantages Of Buying A Home?

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  10. Taxes

    Corporate Tax Rates: The Highs and the Lows

    The United States is No. 2 in the world for its high corporate tax rate. There are ways around paying it, and many nations with lower rates are worse off.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center