Conflict Resolution

Milena Bezerra
Tax Reform Act of 1986
The Tax Reform Act of 1986 was an act
passed by the U.S. Congress to simplify
income tax law. In order to increase
equity and provide an impetus for
economic growth, the passage of the
law further reduces the top tax rate

ordinary income and increase the tax

rate on long-term capital gains.
About the Conflict
The distinction between long-term capital gains
and regular income was meant to be eliminated by
the law. The act increased the maximum tax rate on
long-term capital gains from 20% to 28% and
required that capital gains be taxed at the same rate
as ordinary income. Its goals were to reduce the
number of tax shelters and favors, increase the
revenue base, and simplify the tax code.

Americans were paying too much in taxes, and

constitutional law was evolving into something that
was unfair and disorderly.
Basic Requirements
The fundamental needs of the Taxes were to
increase the bottom tax rate from 11% to 15%
and decrease the top tax rate for ordinary
income from 50% to 28%. For the first time in
the history of the U.S. income tax, the top tax
rate was decreased while the bottom rate was
raised.
Americans were paying too much in taxes and
the tax system was becoming unfair and
disorderly, two features of constitutional law
that were at odds.
Advantages of Tax Reform Act
There were various advantages, but the
main one was that the system became
more equitable because it increased the
bottom rate while lowering the top tax
rate for individuals. Additionally, it
eliminated parts of the tax code that let
people to write off interest on
consumer loans.
How they came to the Solution
The amount of taxes being paid, which did not
correspond with the top tax rate and bottom
rate, was the issue that was intended to be
resolved. In other words, one was far higher
than the other, which created a chasm in their
relationship.
People were drawn to the idea that it would
enhance fairness and function as a catalyst for
economic growth because they saw how this
inequity affected both the government and the
general populace.
Negative Aspects of the Tax Resolution
The Tax Reform Act of 1986 did not have many
unfavorable effects overall. The detractors later
learned that investment decreased as a result of the
law's passage.

Despite the fact that the business tax rate was also
lowered by the 1986 law, the two laws are not
directly comparable. Like the TCJA, the '86 law
significantly lowered the statutory corporate
income tax rate. Despite the lower corporate tax
rate, the 1986 reform also included other provisions
that increased the cost of capital.