Income tax rates
The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15% since many lower level tax brackets were consolidated, and the upper income level of the bottom rate was increased from $5,720/year to $29,750/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income. [1] This would be the only time in the history of the U.S. income tax (which dates back to the passage of the Revenue Act of 1862) that the top rate was reduced and the bottom rate increased concomitantly. In addition, capital gains faced the same tax rate as ordinary income. Moreover, interest on consumer loans such as credit card debt were no longer deductible. An existing provision in the tax code, called Income Averaging, which reduced taxes for those only recently making a much higher salary than before, was eliminated (although later partially reinstated, for farmers in 1997 and for fishermen in 2004). The Act, however, increased the personal exemption and standard deduction.
The rate structure also maintained a novel "bubble rate." The rates were not 15%/28%, as widely reported. Rather, the rates were 15%/28%/33%/28%. The "bubble rate" of 33% simply elevated the 15% rate to 28% for higher-income taxpayers. As a result, for taxpayers after a certain income level, TRA86 provided a flat tax of 28%. This was jettisoned in the Omnibus Budget Reconciliation Act of 1990, otherwise known as the "Bush tax increase", which violated his Taxpayer Protection Pledge.
Yeah, so many 'loopholes' were closed that the concentration of wealth at the top made a nice jump over the last few decades... |
