Known as the second of the Reagan tax cuts — the first being the Economic Recovery Tax Act of 1981 — the Tax Reform Act of 1986 lowered the tax rate for top-earning individuals and corporations while raising it for low-earning individuals. Presented as a way to simplify America’s notably complicated tax code, to be more fair, and to incentivize economic growth, it slashed the top tax rate for ordinary income (wages, salaries, commission, and interest earned on bonds) from 50 percent to 28 percent, increased the bottom tax rate from 11 percent to 15 percent and reduced the corporate tax rate from 50 percent to 35 percent. It marked the first time in history that the U.S lowered taxes on the richest and raised them on the poorest. Additionally, the Act eliminated the tax distinction between long-term capital gain and ordinary income, eradicated certain tax shelters, and increased the Home Mortgage Interest Deduction, making interest fully deductible on any person’s first or second home, regardless of cost.
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