After the Reagan tax reforms of 1986 cut the top personal income tax rate from 50% to 28%, did the average effective tax rate on the top 20% of income earners rise or fall?
After the Reagan tax reforms of 1986, the average effective tax rate on the top 20% of income earners rose by 2.1 percentage points in 1987 and stayed around that level for the next 5 years. This is because the economy performed well, and because these tax reforms eliminated numerous tax preferences that were used for social engineering and special interest subsidies. Reagan's 1986 tax reforms also cut the top corporate income tax rate from 46% to 34%, but inflation-adjusted total federal taxes per U.S. resident grew by an average of 11% over the next 3 years. During this period, the average effective tax rates on the bottom 80% of income earners stayed level or fell.