Income Tax Rates
The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15%. Many lower level tax brackets were consolidated, and the upper income level of the bottom rate (married filing jointly) was increased from $5,720/year to $29,750/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income. This would be the only time in the history of the U.S. income tax (which dates back to the passage of the Revenue Act of 1862) that the top rate was reduced and the bottom rate increased concomitantly. In addition, capital gains faced the same tax rate as ordinary income. Some sources claim the loopholes and tax expenditures after lobbying, but others argue the rise in corporate taxes offset any benefit.
The rate structure also maintained a novel "bubble rate." The rates were not 15%/28%, as widely reported. Rather, the rates were 15%/28%/33%/28%. The "bubble rate" of 33% simply elevated the 15% rate to 28% for higher-income taxpayers. As a result, for taxpayers after a certain income level, TRA86 provided a flat tax of 28%. This was jettisoned in the Omnibus Budget Reconciliation Act of 1990, otherwise known as the "Bush tax increase", which violated his Taxpayer Protection Pledge.
Read more about this topic: Tax Reform Act Of 1986
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