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The Tax Reform Act of 1986 was given impetus by a detailed tax-simplification proposal from President Reagan's Treasury Department, and was designed to be tax-revenue neutral because Reagan stated that he would veto any bill that was not. Revenue neutrality was targeted by decreasing individual income tax rates, eliminating $30 billion annually in loopholes, while increasing corporate taxes, capital gains taxes, and miscellaneous excises.[1] The act raised overall revenue by $54.9 billion in the first fiscal year after enactment [2] As of 2014, the Tax Reform Act of 1986 was the most recent major simplification of the tax code, drastically reducing the number of deductions and the number of tax brackets (for the individual income tax) to three.[3]

Moreover, interest on consumer loans such as credit card debt was no longer deductible. An existing provision in the tax code, called Income Averaging, which reduced taxes for those only recently making a much higher salary than before, was eliminated (although later partially reinstated, for farmers in 1997 and for fishermen in 2004). The Act, however, increased the personal exemption and standard deduction.

The Individual Retirement Account (IRA) deduction was severely restricted. The IRA had been created as part of the Employee Retirement Income Security Act of 1974, where employees not covered by a pension plan could contribute the lesser of $1500 or 15% of earned income.[6] The Economic Recovery Tax Act of 1981 (ERTA) removed the pension plan clause and raised the contribution limit to the lesser of $2000 or 100% of earned income. The 1986 Tax Reform Act retained the $2000 contribution limit, but restricted the deductibility for households that have pension plan coverage and have moderate to high incomes. Non-deductible contributions were allowed.

Depreciation deductions were also curtailed. Prior to ERTA, depreciation was based on "useful life" calculations provided by the Treasury Department. ERTA set up the "accelerated cost recovery system," or ACRS. This set up a series of useful lives based on 3 years for technical equipment, 5 years for non-technical office equipment, 10 years for industrial equipment, and 15 years for real property. TRA86 lengthened these lives, and lengthened them further for taxpayers covered by the alternative minimum tax (AMT). These latter, longer lives approximate "economic depreciation," a concept economists have used to determine the actual life of an asset relative to its economic value.

Defined contribution (DC) pension contributions were curtailed. The law prior to TRA86 was that DC pension limits were the lesser of 25% of compensation or $30,000. This could be accomplished by any combination of elective deferrals and profit sharing contributions. TRA86 introduced an elective deferral limit of $7000, indexed to inflation. Since the profit sharing percentage must be uniform for all employees, this had the intended result of making more equitable contributions to 401(k)'s and other types of DC pension plans.

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Changes to the AMT[edit]
The original Alternative Minimum Tax targeted tax shelters used by a few wealthy households. However, the Tax Reform Act of 1986 greatly expanded the AMT to aim at a different set of deductions that most Americans receive. Things like the personal exemption, state and local taxes, the standard deduction, private activity bond interest, certain expenses like union dues and even some medical costs for the seriously ill could now trigger the AMT. In 2007, the New York Times reported, "A law for untaxed rich investors was refocused on families who own their homes in high tax states."[10]

What is your point? Are you saying the tax increases caused the Reagan economic boom? Are you saying that the increased taxes we are now experiencing is a good thing, in economic terms? Reagan's policies provided more economic freedom in the private sector. Are you saying that the current highest-in-the-world corporate taxes are good? Are you denying this? True, deductions were reduced or eliminated which did affect some people, but the overall economic conditions improved. You can quibble all you want, again, what is your point?

I would suggest that you practice reading and comprehension, and quit injecting irrelevant and superfluous points into the discussion. My point is the same as it has been since the beginning of this discussion: Reagan did not cut TAXES, he cut TAX RATES, and tax collections increased immediately as a direct result of his restructuring of the tax code. Bottom line: he took more money from all of us, on an aggregated basis, not less.

While technically correct, would you kindly explain if you are saying that the above was a good or a bad thing? The way you have phrased the point makes it appear you are arguing that Reagan's policies were a failure because they resulted in increased treasury revenue.

Technically, if you look at it on an individual basis, he certainly did cut taxes.