Tax Reform Act of 1986

The Tax Reform Act of 1986 (TRA) was passed by the 99th United States Congress and signed into law by President Ronald Reagan on October 22, 1986. The Tax Reform Act of 1986 was the top domestic priority of President Reagan's second term. The act lowered federal income tax rates, decreasing the number of tax brackets and reducing the top tax rate from 50 percent to 28 percent. The act also expanded the earned income tax credit, the standard deduction, and the personal exemption, removing approximately six million lower-income Americans from the tax base. Offsetting these cuts, the act increased the alternative minimum tax and eliminated many tax deductions, including deductions for rental housing, individual retirement accounts, and depreciation. Although the tax reform was projected to be revenue-neutral, it was popularly referred to as the second round of Reagan tax cuts (following the Economic Recovery Tax Act of 1981). The bill passed with majority support in both the House of Representatives and the Senate, receiving the votes of majorities among both congressional Republicans and Democrats, including Democratic Speaker of the House Tip O'Neill. Passage After his victory in the 1984 presidential election, President Ronald Reagan made simplification of the tax code the central focus of his second term domestic agenda. Working with Speaker of the House Tip O'Neill, a Democrat who also favored tax reform, Reagan overcame significant opposition from members of Congress in both parties to pass the Tax Reform Act of 1986.