TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, October 24, 2012

Ten Reasons Romney Can't Cut the Top Tax Rate to 28% Like Reagan Did

Forbes:  10 Reasons Reagan Could Cut The Top Tax Rate To 28%, But Romney Can't, by Janet Novack:

Twenty-six years ago today, President Ronald Reagan signed a sweeping bipartisan tax reform that chopped the top individual income tax rate from 50% to 28%; curbed special deductions, exclusions and breaks; gave most families a tax cut; left the richest 1% paying a slightly higher share of taxes; and didn’t add to the deficit.

In short, the Tax Reform Act of 1986 did much of what former Massachusetts Governor Mitt Romney says he will do as president. The Republican candidate’s tax plan would make the expiring Bush tax cuts permanent and then cut individual income tax rates a further 20%, bringing the top rate down from 35% to 28%. Romney says these cuts can be financed primarily by limiting itemized deductions or other tax breaks for the well off—and without decreasing the share of income taxes paid by the wealthy, raising taxes on those earning less than $200,000, or increasing the deficit. ... [I]t would be harder for Romney to get to a 28% top rate. Here are 10 reasons why.

  1. Reagan shifted the tax burden to business, Romney isn’t likely to
  2. Reagan raised the tax on capital gains; Romney won’t
  3. Romney wants to get rid of the estate tax
  4. Romney says he’ll preserve existing savings incentives
  5. …And add new ones
  6. The 1986 reform didn’t have to raise revenues
  7. The baseline has become a ticking bomb
  8. The income tax is no longer broad based
  9. The 1986 reform hit tax shelters and arbitrage hard
  10. Reagan didn’t have to fix a $1 trillion AMT hole

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The 86 Act repealed the investment tax credit, which was a major revenue raiser and provided room for rate reduction. That ain't around now.

Posted by: LAxelrod | Oct 31, 2012 12:18:37 PM