Cameron Miranda
The Tax Reform Act has been signed into law on multiple occasions in the United States. The Tax Reform Act of 1969 was signed by President Richard Nixon on December 30, 1969, and included the Alternative Minimum Tax, which aimed to tax high-income earners who had previously avoided tax liability. The Tax Reform Act of 1986 was signed into law by President Ronald Reagan on October 22, 1986, and was intended to simplify the tax code, broaden the tax base, and eliminate tax shelters. More recently, the Tax Cuts and Jobs Act was signed into law by President Trump on December 22, 2017, reducing tax burdens and simplifying the tax filing process. In 2025, Trump also signed the One Big Beautiful Bill Act, extending personal tax cuts indefinitely.
| Characteristics | Values |
|---|---|
| Name of the tax reform | Tax Cuts and Jobs Act (TCJA) |
| Year | 2017 |
| Date signed into law | December 22, 2017 |
| Signed by | President Trump |
| Other names | One Big Beautiful Bill Act |
| Year of extension | 2025 |
| Date signed into law | July 4, 2025 |
| Signed by | President Trump |
| Previous tax reform | Tax Reform Act of 1986 |
| Year | 1986 |
| Date signed into law | October 22, 1986 |
| Signed by | Republican President Ronald Reagan |
| Previous tax reform | Tax Reform Act of 1969 |
| Year | 1969 |
| Date signed into law | December 30, 1969 |
| Signed by | President Richard Nixon |
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What You'll Learn
The One Big Beautiful Bill Act, 2025
The OBBB of 2025 included provisions to prevent most of the tax laws from reverting to those from 2017, before the TCJA, while also introducing additional changes. The Act provided tax deductions for working Americans and seniors, including a new deduction for individuals who receive qualified overtime compensation, allowing them to deduct the pay that exceeds their regular rate. This deduction is available for both itemizing and non-itemizing taxpayers and is effective for tax years 2025 through 2028. Additionally, individuals who are 65 years or older can claim an additional deduction of $6,000, which is in addition to the existing senior deduction under current law.
The OBBB also introduced a deduction for interest paid on loans used to purchase qualified vehicles for personal use, provided they meet certain eligibility criteria. This deduction is also effective for tax years 2025 through 2028. Furthermore, the Act included a provision for "No Tax on Car Loan Interest," with a requirement for the "Final assembly in the United States." Additionally, the Act provided tax relief for taxpayers claiming deductions and for employers and payors subject to new reporting requirements for the 2025 tax year.
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Tax Cuts and Jobs Act, 2017
The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump on December 22, 2017. The Act made significant changes to the US tax code, including reducing taxes for most taxpayers and cutting the corporate tax rate. The Trump Administration supported the bill, claiming it would have significant economic benefits and pay for themselves. However, the legislation was opposed by Democrats, who viewed it as favouring corporations and high earners over middle-class communities.
The TCJA included several provisions that affected both individuals and businesses. For individuals, the Act greatly increased the standard deduction, reduced the number of people who itemize deductions, and altered the deduction for interest on home mortgages and equity. The state and local tax (SALT) deductions were capped, and miscellaneous tax deductions for things like workplace expenses were eliminated. The TCJA also doubled the indexed estate tax exemption and allowed a tax credit for employers providing paid family and medical leave. These changes were expected to reduce taxes by an average of $1,600 in 2018 and 2025, with the top 20% of Americans by income receiving about 65% of the savings.
For businesses, the TCJA reduced the corporate tax rate from 35% to a flat rate of 21%, changed flow-through taxation, increased depreciations, and made significant changes to taxing international income. The Act also enacted a 100% bonus deduction for business assets purchased through the end of 2022 and increased expensing provisions. These changes were expected to boost capital investment and improve the international tax system.
The TCJA had mixed results in terms of economic impact. While it simplified the tax code for some, lowered corporate debt, and increased investment temporarily, it did not lead to a surge in investment from abroad. Additionally, the tax cuts were expected to increase deficits. A study by Patrick J. Kennedy and the Joint Committee on Taxation found that the top 10% of income earners experienced wage increases, while the bottom 90% did not. The Act was also criticized for its rushed and secretive legislative process, which some believed resulted in flawed legislation.
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Tax Reform Act of 1986
The Tax Reform Act of 1986 was signed into law by Republican President Ronald Reagan on October 22, 1986. The Act was sponsored in Congress by Richard Gephardt (D-MO) in the House of Representatives and Bill Bradley (D-NJ) in the Senate. The legislation was passed to simplify the income tax code, increase fairness, and provide an incentive for economic growth.
The Tax Reform Act of 1986 lowered the top tax rate for ordinary income from 50% to 28% and raised the bottom tax rate from 11% to 15%. This was the first time in U.S. income tax history that the top tax rate was lowered and the bottom rate was increased simultaneously. The Act also eliminated the distinction between long-term capital gains and ordinary income, mandating that capital gains be taxed at the same rate as ordinary income. This raised the maximum tax rate on long-term capital gains to 28% from 20%.
In addition to altering the tax brackets, the Act eliminated certain tax shelters and required those claiming children as dependents to provide Social Security numbers for each child on their tax returns. It expanded the Alternative Minimum Tax (AMT)—the least tax that an individual or corporation must pay after all eligible exclusions, credits, and deductions—and increased the Home Mortgage Interest Deduction to incentivize homeownership. The Act ended tax code provisions that allowed individuals to deduct interest on consumer loans, but it increased personal exemptions and standard deduction amounts indexed to inflation.
The Tax Reform Act of 1986 also had a significant impact on businesses. The corporate tax rate was reduced from 50% to 35%, and the allowances for certain business expenses, such as business meals, travel, and entertainment, were reduced. The Act also restricted deductions for certain other expenses. Additionally, the Act extended depreciation schedules for both commercial and non-commercial real estate, reducing the attractiveness of those investments.
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Tax Reform Act of 1969
The Tax Reform Act of 1969 (TRA69) was signed into law by US President Richard Nixon on December 30, 1969. It was a substantive and comprehensive reform of income tax laws, the first major tax reform in 15 years. The Act aimed to make the federal tax system simpler, fairer, and more equitable, reducing the tax burden on most taxpayers and encouraging long-term investments.
One of the key features of the TRA69 was the introduction of the Alternative Minimum Tax (AMT), which was designed to target high-income earners who had previously avoided paying taxes due to various exemptions and deductions. The AMT set a minimum tax rate of 10% for individuals and corporations, ensuring that those with substantial incomes could no longer exploit loopholes and preferences to eliminate their tax liability. This change addressed the issue of tax favoritism, which had weakened the federal government's ability to collect revenue and led to a complex and inequitable tax system.
The TRA69 also included a range of other measures to broaden the tax base and increase tax revenue. It established a government definition of "private foundation" for the first time, imposing new requirements and restrictions on philanthropic foundations. The Act increased standard deductions and personal exemptions, making it easier for over 19 million taxpayers to take advantage of the simple standard deduction. It also introduced a temporary income tax surcharge for the first six months of 1970 and included measures to guard against the over-withholding of income taxes, such as exempting students working during the summer from certain withholding requirements.
While the TRA69 was a significant step towards tax reform, it fell short of President Nixon's original proposals by nearly $3 billion. Nixon expressed concern about Congress's reluctance to address the adverse impact of its tax and spending decisions, warning against reducing taxes while simultaneously increasing spending. Despite this shortfall, the TRA69 was a sweeping reform that successfully addressed many long-standing issues in the US tax system.
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Individual tax cuts and reforms of the TCJA
The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump on December 22, 2017. The act was described by the New York Times as "the most sweeping tax overhaul in decades". The TCJA made significant changes to individual taxes, including:
- Lowering most individual income tax rates, including the top marginal rate from 39.6% to 37%.
- Increasing the standard deduction to $12,400 for single filers and $24,800 for married filers (tax year 2020), a substantial increase from the previous amounts of $6,500 for single filers and $9,550 for married filers.
- Eliminating the personal exemption and limiting certain itemized deductions, such as the state and local tax (SALT) deduction, mortgage interest deduction (MID), and charitable contribution deduction.
- Doubling the estate tax exemption to $11.2 million for single filers and $22.4 million for couples, with the top estate tax rate remaining at 40%.
- Setting the Affordable Care Act's (ACA) individual mandate penalty tax to zero, removing the penalty for individuals without qualifying health insurance.
- Changing the measure used for inflation indexing from the Consumer Price Index for All Urban Consumers (CPI-U) to the chained CPI-U, which more accurately reflects changes in consumer behaviour due to price changes.
The TCJA's individual tax provisions were designed to be temporary, with most set to expire after 2025. However, in 2025, Congress passed the One Big Beautiful Bill Act, which extended many of the TCJA's provisions beyond their original expiration dates, making some of them permanent.
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Frequently asked questions
The Tax Reform Act of 1969 was signed into law by President Richard Nixon on December 30, 1969.
The Tax Reform Act of 1986 was signed into law by Republican President Ronald Reagan on October 22, 1986.
The Tax Cuts and Jobs Act was signed into law by President Trump on December 22, 2017.
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