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A Lot Has Changed in the 27 Years Since the Last Major Tax Reform

By: Andrew Lundeen

The last time we reformed the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code, the world (and our economy) was entirely different. It was 27 years ago today that President Reagan signed the 1986 Tax Reform Act into law.

Since 1986, the U.S. tax code has gone from less than 30,000 pages to over 70,000 pages.

The corporate tax rate has gone from just about average on the international scale, to the highest in the industrialized world.

More business income is now earned by pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. es (sole proprietorships, partnerships, and S Corps).

The amount of credits, loopholes, and deductions has increase by 44 percent, from $844 billion (2013 dollars), to over $1.2 trillion (2013 dollars), with much of that growth coming from the expansion of refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit. s.

All these changes in the composition of U.S. taxpayers, businesses, and the economy in which they operate help illustrate the need for tax reform that simplifies the tax code in a way that limits double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. and leads to greater economic growth.

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