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Suite 515
Washington, D.C. 20004
(202) 347-9570
April 8, 1987
THE ECONOMIC FALLOUT OF THE TAX REFORM ACT OF 1986[1]
Introduction
The Tax Reform Act of 1986 (TRA-86) has been touted as the most far reaching and
important income tax legislation since the income tax was added to the federal
government's revenue arsenal more than seven decades ago. This characterization may
be a tad hyperbolic, but there can be little doubt that in terms of its reach, the
number of provisions in the Internal Revenue Code that are changed, the magnitude of
the changes in tax burdens, the number of individuals and corporations directly
affected, and so on, the TRA-86 is surely among the very biggest tax events in our
nation's fiscal history. It is more than passing strange, therefore, that so little of
policy makers' attention was focused on how the major provisions of the legislation
and how the Act taken as a whole would affect the composition and magnitude of
economic activity in the United States. One must wonder about a policy-making
process that leads to questions about the effects of the tax changes on, say, the
competitive position of U.S. businesses in world markets, the composition and amount
of capital formation, or the growth rate of the Nation's total output and income, only
after the tax changes have become law.
In all fairness, it must be acknowledged that a detailed, definitive enumeration of the
economic consequences of the TRA-86 very likely lies beyond the present capacity of
quantitative economic analysis. One reason for this is that the TRA-86 is so large, so
varied, and so complex a set of changes in the tax law as to defy easy conclusions
about what specifically and precisely it will do to the U.S. economy, other things being
equal. Another reason is that in an economy as large, as diverse, and as dynamic as
that of the United States, other things are never equal. The problems of delineating
the interaction of this enormous set of tax changes with this ever-changing and
enormous economy are so severe that conclusions about the economic consequences of
tax reform must be surrounded with substantial qualifications.
It is well, moreover, to remember that although taxes, indeed all public policies,
influence the economy's performance, they do not uniquely or ultimately determine that
[1] This Economic Policy Bulletin is adapted from a paper presented to the 38th National Confer-
ence of the Tax Foundation on December 3, 1986.
Note: Nothing written here is to be construed as necessarily reflecting the views of
IRET or as an attempt to aid or hinder the passage of any bill before Congress.](ViewImageLocal?handle=hein.taxfoundation/iretpbul0006&div=1&collection=&method=preview&ext=.png&size=3)