THE DISTRIBUTIONAL IMPLICATIONS OF THE 1986 TAX REFORM

Abstract

In this paper, we examine the tax burden changes in the personal and corporate income taxes induced by the Tax Reform Act of 1986. We develop a comprehensive definition of household income and calculate the tax due in the pre-and post-reform period for households. The Tax Reform Act of 1986 increases tax burdens in the first income decile, contrary to what other analysts report. However, we do find that the Tax Reform Act shifted the distribution of tax burden to the higher income deciles, especially when the corporate income tax burden is allocated to each household.