President Reagan’s tax legacy 25 years later

On October 22, 1986 President Reagan signed into law the Tax Reform Act of 1986.

Twenty-five years ago this week, President Ronald Reagan signed into law the Tax Reform Act of 1986, the last major effort to update the U.S. income tax system.

The legislation, also known as TRA86, lowered individual taxpayer rates by closing corporate loopholes and reflected more than two years of negotiations by Reagan, a Republican, with a Democratic-controlled House of Representatives.

“When I sign this bill into law, America will have the lowest marginal tax rates and the most modern tax code among major industrialized nations, one that encourages risk-taking, innovation and that old American spirit of enterprise,” Reagan said at the time.

Today, the tax code is due for another overhaul, contends John Diamond, Ph.D., the Baker Institute’s Edward A. and Hermena Hancock Kelly Fellow in Public Finance.

He cites the escalating U.S. debt and the complexity, inefficiency and cost of raising revenues to finance government expenditures as reasons for tax reform.

Diamond and George Zodrow, Ph.D., a Rice scholar at the Baker Institute, are the authors of “Fundamental Tax Reform: Then and Now,” which examines the conditions leading up to the 1986 tax reform. The report concludes, “The conditions are right for another sweeping reform of the tax system and, indeed, the case for reform may be even stronger than it was prior to the passage of TRA86.”

Earlier this month, the Baker Institute’s Tax and Expenditure Policy Program organized “Defusing the Debt Bomb: Economic and Fiscal Reform,” a two-day conference on the potential for spending and tax reform in resolving the nation’s debt crisis.

The Honorable Alan Simpson, former U.S. senator and co-chairman of the National Commission on Fiscal Responsibility and Reform, delivered a keynote address at the Baker Institute conference. The bipartisan commission issued a report earlier this year identifying policies to improve the nation’s fiscal situation in the medium term and to achieve fiscal sustainability over the long run.

A video of Sen. Simpson’s speech is below. Learn more about the “Defusing the Debt Bomb: Economic and Fiscal Reform Conference” and other speakers on the event page.