Comparison of 2 Tax Proposals

The Tax Reform Act of 1986 was the first significant revision of the tax code since World War II, when the tax code was converted into a broad-based tax (Snow, 1992, p. 139). It was signed by then-President Ronald Reagan on October 22, 1986. The TRA of 1986 changed the tax code to reflect a more accurate definition of household income. The TRA was designed to be revenue-neutral and progressive in structure. Revenue-neutral means that the total expected collection of tax dollars is the same if taxes are computed with or without the tax code changes. That the TRA is generally progressive means that the tax burden increases as the level of income increases. A person in the lower brackets pays a smaller percentage of income in taxes than does an individual in the top decile. The TRA is progressive in all but th

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ow the exemption rate for their family, anyone without many deductions, anyone with a significant income from savings, capital gains, and dividends. The losers would be people with many deductions, people who count on the tax-sheltered income to pay their mortgage, and people with large real estate holdings which are expected to decrease in value approximately 20 percent when the tax advantages of owning real property disappear (Montero, 1995, p. 74). Losers would also include people in the Northeast portion of the country with high state and local taxes who would lose their deduction. A flat tax would continue the trend begun in 1986 to reduce the number of income brackets and marginal tax rates. The number of income brackets and tax rates would be one with only one type of exception. The flat tax would also continue the trend to shift some of the burden of financing the treasury onto businesses. The TRA shifted roughly 7 percent of the tax burden from households to business. The taxable business income base was increased by eliminating the 10 percent investment tax credit and slower depreciation schedules for equipment and business structures (Snow, 1992, p. 139). The business tax rate fell from 46 percent to 34 percen
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Approximate Pages = 7 (250 words per page)

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