IESET.
Policies·us_tax_reform_act_1986

Tax Reform Act of 1986 (TRA 1986)

USA·1986 – ·enacted 1986-10-22·Republican White House, bipartisan Congresscandidate
movestax progressivity↓tax corporate↓tax capital↑

What the policy did

Tax Reform Act of 1986 (Pub. L. 99-514), signed 22 October 1986. Cut the top individual rate from 50% to 28% in two steps; cut the corporate rate from 46% to 34%; eliminated passive-loss shelters; repealed the investment tax credit; broadened the tax base; raised capital gains rate from 20% to 28%. Designed as revenue-neutral static. Bipartisan — Packwood/Bradley/Gephardt/Kemp/Kasten negotiation with Baker-Darman in Treasury.

Policy-content fingerprint — what this policy moved, on which axes

Per invariant 3, reforms are scored by what they did on each channel-separated axis, not by the party that enacted them. This fingerprint is how the policy-match engine finds historical analogues.

intended
↓
tax progressivity
fiscal.tax_progressivity
Progressivity of the personal income tax schedule, including top marginal rates, bracket spread, and targeted credits (EITC-equivalents).
decreased · strong
less progressive (flatter rates, compression, smaller credits)
↓
tax corporate
fiscal.tax_corporate
Statutory and effective corporate tax rates, treatment of depreciation, and international competitiveness.
decreased · moderate
lower corporate tax burden
↑
tax capital
fiscal.tax_capital
Taxation of capital income (dividends, capital gains, inheritance, wealth). Distinct from corporate rate.
increased · moderate
higher capital income tax
Capital gains rate 20%→28%.

Enacted by

Empirical evidence — linked hypotheses

Explicit links are curated by the author. Inferred links are hypotheses in the library that test the same axes this policy moved — the framework's answer to "what does the data say about a policy like this?".

Wealth taxes produce a three-order causal chain.
wealth_tax_capital_flight_revenue_yield_gapinferred
viafiscal.tax_capitalfiscal.tax_progressivityfiscal.tax_corporate
INCONCLUSIVE_DATA_PENDING — FRA not in panel
run pending
The 2000 Schroder corporate + personal tax reform package (top personal rate cut from 53 to 42 percent staged 2000-2005, corporate rate cut from 40 to 25 percent, capital-gains exemption on inter-corporate shareholdings) is associated with a 1.0 to 1.5 percentage point rise in the German top-1 pre-tax income share over 2000-2008 vs Eurozone synthetic control, but no measurable rise in aggregate output growth beyond Eurozone trend.
tax_inequality_germany_2000_schroder_reforminferred
viafiscal.tax_progressivityfiscal.tax_corporatefiscal.tax_capital
PARTIAL — mean_gap=+0.3903, |gap|/pre_sd=0.43, p_perm=0.4 (gap below 0.5×pre_sd or placebo p≥0.10)
partial
In an OECD-country panel 2014-2024, reductions in the top statutory capital- gains tax rate predict higher subsequent gross fixed capital formation as a share of GDP and higher business-startup rates, controlling for corporate-tax rates, interest rates, and institutional quality.
capital_gains_tax_cut_investment_response_panelinferred
viafiscal.tax_capitalfiscal.tax_corporatefiscal.tax_progressivity
SUPPORTED — coef=-0.1981 (sign matches claim -), p=0.00535
supported
Chilean post-Pinochet tax progressivity reforms — Concertación-era Aylwin-Frei marginal-rate increases 1990-1995, Bachelet 2014 reform raising corporate rate from 20 to 27 percent + DTA tightening, Boric 2022-2024 reform attempts — produced gradual reductions in the Chilean top-1 pretax income share by at least 1.5 percentage points over 1990-2024 vs Latin-American synthetic comparator pool, with most of the level shift concentrated in 1990-2000 rather than the recent reform attempts.
tax_inequality_chile_post_pinochet_progressivityinferred
viafiscal.tax_progressivityfiscal.tax_capitalfiscal.tax_corporate
INCONCLUSIVE_DATA_PENDING — insufficient pre-period coverage (years=0, donors=0)
run pending
Estonia's 1994 flat-tax 26 percent (subsequently reduced to 20 percent by 2015) and the unique 2000 corporate-tax reform (taxing only distributed corporate profits) produced a measurable rise in the Estonian top-1 pretax income share over 1994-2010 vs Baltic synthetic comparator (LVA, LTU), with the distributed-profit-only corporate regime channelling capital-income into top-decile reported income while reducing taxation of retained earnings.
tax_inequality_estonia_1994_flat_tax_dividend_reforminferred
viafiscal.tax_progressivityfiscal.tax_corporatefiscal.tax_capital
INCONCLUSIVE_DATA_PENDING — insufficient pre-period coverage (years=1, donors=0)
run pending
Post-apartheid South African tax structure (top marginal income rate raised to 45 percent in 2017, capital-gains inclusion ratio raised 2012 + 2016, recurring property-tax effective burden via municipal rates) produced a measurable reduction in the South African top-1 pretax income share over 1995-2024 vs SADC synthetic comparator pool, with the recurring property-tax channel contributing more than the marginal-income-rate channel to the distributional effect.
tax_inequality_south_africa_property_tax_burdeninferred
viafiscal.tax_progressivityfiscal.tax_capital
INCONCLUSIVE_DATA_PENDING — insufficient pre-period coverage (years=5, donors=0)
run pending
Macron's 2017 reform replacing the French ISF (Impot de Solidarite sur la Fortune) with the IFI (real-estate-only wealth tax) and the introduction of the 30 percent flat tax (PFU) on capital income produced a measurable rise in the French top-1 pre-tax income share over 2018-2022 relative to Eurozone synthetic control, but a smaller-than-projected fall in HNW emigration once concurrent CRS enforcement is accounted for.
tax_inequality_france_2017_isf_to_ifi_abolitioninferred
viafiscal.tax_capitalfiscal.tax_progressivity
PARTIAL — mean_gap=+1.331, |gap|/pre_sd=2.2, p_perm=1 (gap below 0.5×pre_sd or placebo p≥0.10)
partial
The 1986 Tax Reform Act (TRA86) — which paired a top-rate cut from 50 to 28 percent with substantial base-broadening (passive-loss limits, AMT expansion, capital-gains rate harmonisation) — produced a smaller persistent top-1 income share response than ERTA 1981 once the one-off 1986-1988 realisation spike from capital-gains reclassification is removed.
tax_inequality_reagan_1986_base_broadening_neutralityinferred
viafiscal.tax_capitalfiscal.tax_progressivity
REFUTED — shape=ITS, sign + OPPOSITE claim -, mean_gap=+1.194, z=+3.4
refuted

Similar historical policies

Ranked by axis-fingerprint overlap with this policy. Direction match bolded — those are the closest historical analogues. Shape of the match is what drives policy-outcome comparison, not the country or party label.

19 percent flat tax (PIT/CIT/VAT) 2004
SVK·2004
match
2.2
tax progressivitytax corporatetax capital
Swedish 'Tax Reform of the Century' 1990-1991
SWE·1990
match
2.0
tax progressivitytax corporatetax capital
Economic Recovery Tax Act 1981 + Tax Reform Act 1986
USA·1981
match
2.0
tax progressivitytax corporatetax capital
Macron labour + tax reforms (Ordonnances 2017 + PFU 2018)
FRA·2017
match
1.9
tax progressivitytax capitaltax corporate
Norwegian 1992 tax reform — base broadening and dual-income
NOR·1992
match
1.9
tax corporatetax progressivitytax capital
Gotabaya Rajapaksa tax cut package (Sri Lanka 2019)
LKA·2019
match
1.9
tax progressivitytax corporate
Bush 43 tax cuts (EGTRRA 2001 + JGTRRA 2003)
USA·2001
match
1.7
tax progressivitytax capitaltax corporate
Goods and Services Tax introduction
AUS·2000
match
1.7
tax progressivitytax corporate

References