Final answer:
The Tax Reform Act of 1986 was a significant overhaul that reduced top tax rates from 50% to 28% and raised the minimum rate to 15%, streamlined tax brackets, eliminated many tax shelters, and required social security numbers for dependents to prevent tax fraud.
Step-by-step explanation:
Aspects of the Tax Reform Act of 1986
The Tax Reform Act of 1986 was a landmark law that brought about major changes to the tax system in the United States during President Ronald Reagan's administration. This sweeping reform simplified the federal tax code, reduced the top tax rates for wealthy individuals from 50 percent to 28 percent, and raised the minimum tax rate from 11 percent to 15 percent. It also streamlined the number of tax brackets, which meant that most Americans paid either a 15 percent or 28 percent tax rate.
In addition to modifying tax rates, the Act eliminated many tax shelters and strategies that were previously used to hide income or illegally lessen one's tax obligations. To combat tax fraud, the law mandated that parents provide social security numbers for each dependent child on their tax returns. One notable outcome of this provision was the disappearance of millions of 'children' from tax filings the following year, reflecting the extent of fraudulent exemptions claimed.
Other provisions in the Act included adjustments that benefited the poor, such as cost-of-living increases to the exempted income amount. This helped ensure that those living below the poverty level would not receive a tax bill. Conversely, while some tax shelters for individuals were closed, the Act did not eliminate similar loopholes for corporations. Overall, the Tax Reform Act of 1986 represented one of the most significant overhauls of the tax system since the establishment of the federal income tax under the Sixteenth Amendment.