Federal Tax Reform: Back to the Future?

July 13, 2005

Today, the Tax Foundation released a new “Fiscal Fact” exploring the shift in tax burden from individual to corporate taxpayers in the Tax Reform Act of 1986 (TRA-86). The study highlights the major changes for corporate and individual taxes in TRA-86, and the amount of revenue those changes were expected to reduce or increase federal revenues. Even though TRA-86 was revenue neutral overall, our new Fiscal Fact shows that corporate taxes went up and individual taxes went down (see table below).

Impact of TRA-86 on Federal Corporate and Individual Revenues

Income Tax Five-Year Revenue Estimate
Individual ($122 billion)
Corporate $120 billion
Total ($2 billion)

The study urges the President’s Advisory Panel on Tax Reform, and Congress, to avoid a similar shift in any future tax reform plan. The study concludes that true tax reform should “…avoid the temptation to use revenue neutrality as an excuse to redistribute the tax burden among Americans.”

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A 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.