REPUBLICANS like to say that their tax bill, which passed the Senate on December 2nd, is the first tax reform since 1986. President Donald Trump likes to call it the biggest tax cut in history. Mr Trump’s claim is easily disproved (see chart). Yet the comparison with the law of 1986, passed under Ronald Reagan, is more curious. There is no doubt today’s bill, like the older one, contains significant reforms. But the differences between the two efforts stand out more than the similarities. They are not quite mirror images of each other—but they are not far off.
There are three main differences between then and now. First, the centrepiece of today’s bill is a cut in the corporate tax rate, from 35% to 20%. At first glance, this seems comparable to the change to the levy in 1986, when it fell from 46% to—after a brief delay—34%. Yet such was the volume of deductions that the 1986 reform swept away, that it in fact raised average taxes on businesses. Notably, investment incentives...Continue reading
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