From the Tax Foundation Archives: Income Taxes in 1987

October 24, 2008

A Tax Foundation Working Paper published in April 1987 and recently added to our online archives, titled "More Battles over Tax Burdens," sounds strikingly similar in many places to some of the tax talk we've been hearing during this election season (and during most recent election seasons, actually). Here's an excerpt:

1. Because of the deficit and other factors, there will be a continual testing of sentiment to retain or raise top marginal tax rates.

2. The historical record does not support charges that the Federal tax system has become much less progressive and rewards the rich.

3. The specific way the Tax Reform Act of 1986 was crafted leaves an opening for top rate hikes, but, if rates are raised, they will have to reach down to at least the upper-middle income groups to realize significant revenues.

4. Fiscal policy restraint and value-added taxation are viable alternatives to income tax increases.

Speaker Jim Wright is not likely to succeed in his proposal to extend the top personal tax rates of 1987 as a means of reducing the budget deficit. The commitment to the tax rate schedule under the Tax Reform Act of 1986 appears strong enough to allow the reduction from a top of 38-1/2 percent this year to basically 28 percent in 1988 to take place. That will not be the end of it, however . A good number of tax policy observers believe that the 28 percent rate is politically unstable. There will be continued testing of sentiment to reimpose higher personal rates in the future.

. . .

We should never underestimate the resourcefulness of government to resort to new gimmickry. But the 1988 election should sharpen the focus on ways to deal more strenuously with the budget deficit. It will also focus again on national priorities and the way to finance them. And, despite the strong opposition of the current Administration, it's not too difficult to construct a scenario for higher, and more progressive, income taxes.

The paper discusses the 1981 tax cuts, the Tax Reform Act of 1986, and possibilities for future reform, including a flat tax or consumption tax.

Click here to read the paper (PDF). Click here for a chart of federal individual income tax rates and brackets from 1913 to the present.

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