Tax Reform Act of 1986 facts for kids
The Tax Reform Act of 1986 was an important law passed in the United States. Its main goal was to make the rules for paying income tax simpler. It also aimed to make sure more people and businesses paid their fair share of taxes, and to stop special ways some people used to avoid paying taxes. This law was a big part of what were known as the "Reagan tax cuts," named after President Ronald Reagan.
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What Was the Tax Reform Act of 1986?
The Tax Reform Act of 1986, often called TRA, was a major change to how Americans paid their taxes. Before this law, the tax rules were very complicated. Many people felt the system was unfair because some wealthy individuals and companies could use special rules, sometimes called "tax shelters," to pay less tax. The new law tried to fix this by making the rules easier to understand and apply to everyone.
Why Did the U.S. Change Tax Rules?
The main reasons for creating this law were:
- To simplify the tax code: This meant making the rules for income tax much easier to understand for everyday people and businesses. Imagine a game with too many confusing rules; this law tried to make the tax game simpler.
- To broaden the tax base: This means making sure more types of income and more people were included when calculating taxes. It was about making sure everyone contributed fairly, instead of just a few.
- To remove tax shelters and preferences: These were special rules or loopholes that allowed some people or companies to pay less tax than others. The law aimed to get rid of these, so everyone followed the same basic rules.
President Reagan's Role
Ronald Reagan was the President of the United States from 1981 to 1989. He believed that lower taxes and simpler tax rules would help the country's economy grow. The Tax Reform Act of 1986 was a big part of his plan to change how the government collected money. He worked closely with the U.S. Congress to get this important law passed.
How Did the New Tax Law Work?
The Tax Reform Act of 1986 made several big changes:
- It lowered the highest tax rates for individuals and companies. This meant that even if you earned a lot of money, the percentage of tax you paid on your highest earnings was less.
- It also removed many of the special deductions and exemptions that people used to reduce their taxable income. This helped to "broaden the tax base" and make the system fairer.
- The law aimed to make sure that people paid taxes based on their actual income, rather than using complicated ways to avoid it.
This law was a big deal because it was one of the largest tax changes in U.S. history. It showed how the government tried to make the tax system more fair and simple for everyone.
