The 1982 Minimum Tax Amendments as a First Step in the Transition to a “Flat-Rate” Tax

Abstract

The massive body of tax legislation enacted in the first two years of the Reagan Administration offers little guidance for predicting the future direction of United States tax policy. Dramatically different Congressional coalitions—each led by the President—passed by very narrow margins the nation's largest tax reduction (the Economic Recovery Tax Act of 1981) and then the next year enacted the largest peacetime tax increase (the Tax Equity and Fiscal Responsibility Act of 1982). In each case, short-term political and fiscal concerns dominated the debates. The 1981 legislation reduced taxes in an effort to stimulate economic activity and investment by according substantial tax relief to businesses and high income individuals; the 1982 legislation requires significant additional taxes from these same sources to reduce triple-digit deficits, a reduction also deemed necessary for economic recovery. Although the two Acts together provide for an overall reduction in business taxes and a phased-in decrease in marginal tax rates applicable to individuals, they impart the overwhelming impression that uncertainty, confusion, and inconsistency currently dominate the tax legislative process.