Reagan's 1986 Tax Reform vs. Trump's 2017 Tax Reform
This past Saturday, Senate Republicans approved a bill that would overhaul the country’s lengthy tax code. Lawmakers now expect that a final version of the legislation will be sent to President Trump to sign by the end of December.
Since Congress began working on tax reform earlier this year, experts have compared and contrasted Trump’s proposed cuts and President Reagan’s 1986 Tax Reform Act, widely viewed to be the most comprehensive tax reform bill in modern history. While there are some similarities between these two bills, there are stark differences in both the process used to pass them and their substance.
1. Trump tax reform encourages money to return from overseas; Reagan’s tax reform did not.
Today’s House and Senate bills both allow for a one-time period during which all profits held overseas can return to the U.S. while only being subjected to a 14 percent tax. Estimates show this could bring back nearly $3 trillion to the U.S. Reagan’s tax reform did not address the issue of stashed profits, which has become an outsize issue over time.
2. Reagan’s tax reform kept SALT; Trump’s tax reform is trying to kill it.
While Reagan tried to get rid of the state and local tax deduction, better known as SALT, he ultimately conceded defeat and kept it. By contrast, today’s legislation take aim at SALT, which disproportionately impacts high earners in left-leaning states.
3. The drop in corporate rates differ between the bills.
Reagan’s tax reform lowered the corporate rate to 34 percent. The current House and Senate bills lower the corporate rate to 20 percent, which is more in line with the Organization for Economic Cooperation and Development (OCED) average. In recent years, many countries have been lowering their corporate rates to promote economic development; today’s legislation reflects this change.
4. Expanding standard deductions.
The current tax reform removes or limits various regressive deductions and replaces them with a double standard deduction and child tax credit. The Senate’s version retains seven tax brackets and drops the top rate to 38 percent.
While Reagan’s tax reform also expanded the standard deduction, it expanded the personal exemption as well. Reagan’s version consolidated the number of tax brackets from 15 to two, and reduced the top individual rate to 28 percent from 50.
5. Differing stances on estate and gift taxes.
Reagan’s 1986 bill kept estate and gift taxes. By contrast, today’s House plan calls for the repeal of the estate and gift tax by 2024. The Senate plan would keep both but with dramatically higher exemption levels. In the coming weeks, we will see how lawmakers reconcile this difference between the two bills.
6. Reagan’s tax reform took significantly longer.
Reagan’s tax reform took time — almost two full years from start to finish. During this period, Congress held 30 hearings and another 26 days of committee markups. By contrast, the current reform efforts saw no official hearings and went through only a few days of committee markups.
7. Reagan’s bill had bipartisan support; Trump’s does not.
In 1986, a majority of both parties supported the final tax reform legislation. This year, not a single Democrat in either the House or the Senate voted for the proposed legislation.
Ultimately, history will determine how Trump’s tax reform compares with Reagan’s. But one thing is certain: Once a plan is signed into law this year, many Americans will immediately see a difference in their taxes, for better or for worse.
No Labels is an organization of Democrats, Republicans, and independents working to bring American leaders together to solve problems.