I want to know the following details about the Reagan tax cuts:

During which year did the exclusion for medical expenses get raised
from 3% of income?  Was it initially raised to 7%, or was it at 5% at
first?  When did it go to 7%?

Which tax cut did Reagan dress up as Mr. GreenJeans to show he was for
the working man?  (It was the same as one of the above.)

In that same tax cut, the taxes of single people earning between
$20000 and $30000 a year also went up.  By how much?

What other groups had their taxes raised and by what percentage?

Thanks.

Linda Jacobson

Hello.

Yes, the medical expense deduction floor was at 5 percent first.

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) raised
the floor for the medical expense deduction from 3 percent to 5
percent.

The Tax Reform of 1986 then raised the floor for the medical expense
deduction from 5 percent to 7.5 percent.

source:

"From 1954 through 1982, the floor under the medical expense deduction
was 3 percent of the taxpayer's adjusted gross income ("AGI"'); a
separate floor of 1 percent of AGI applied to expenditures for
medicine and drugs.
In the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the
floor was increased to 5 percent of AGI (effective for 1983 and
thereafter) and was applied to the total of all eligible medical
expenses, including prescription drugs and insulin. TEFRA made
nonprescription drugs ineligible for the deduction and eliminated the
separate floor for drug costs.
The Tax Reform Act of 1986 increased the floor under the medical
expense deduction to 7.5 percent of AGI, beginning in 1987. "
source: 1996 Green Book: DEDUCTIBILITY OF MEDICAL EXPENSES
http://www.welfareacademy.org/research/greenboo/sect14/14dome.htm

---------------

Actually, President Reagan wore his "Mr GreenJeans" attire at the
signing of an earlier tax bill, namely, the Economic Recovery Tax Act
of 1981.  Reagan wore the denim outfit when he signed this bill at his
California ranch on August 13, 1981. See a photo at Reaganranch.org:
http://www.reaganranch.org/ranch/historic_events.htm

I suppose that you could say that the 1981 bill was somewhat related
to 1982's TEFRA that changed the medical deduction. Various sources
suggest that the 1982 bill was something that Sen. Bob Dole
spearheaded as a way of cutting the deficits that had been created by
Reagan's 1981 bill.
See: Mother Jones - "On the Record"
http://www.motherjones.com/mother_jones/JF96/dole/sidebar.html
NCPA: Measuring Tax Increases
http://www.ncpa.org/pi/taxes/pdtx82.html


--------------

Moving on to the final part of your question...

The "tax cut" that resulted in many people paying higher taxes was
actually the Tax Reform Act of 1986. While the 1981 cut had featured
across the board cuts in every bracket, the 1986 "cut" consolidated
brackets and eliminated deductions in such a way that resulted in
about 15% percent of taxpayers paying more.

The changes were very complicated, though, and it would an
oversimplification to simply say that EVERYONE earning between $XX,XXX
and $XX,XXX paid more in taxes (or paid less). Some taxpayers were
forced into higher brackets. And deductions for certain things like
IRA contributions were reduced for some taxpayers and this cause some
middle income taxpayers to pay more. On the other hand, there were
increases in deductions for dependent children and personal
exemptions, and theses increases offset what might have otherwise been
a tax increase for some taxpayers.


Using a library database of newspaper archives, I have found some
articles from 1986 that discussed this very complicated issue:

"...automatically, singles with a taxable income of more than $17,600
and couples with more than $29,300 would be moved into the top
bracket. That is, they would pay the 27 percent rate on income above
those figures. That could mean many would actually pay more tax
dollars than they do under present law."
source:
"The nitty-gritty facts on way to tax reform"
Chicago Sun - Times; ; May 22, 1986; Edwin Darby


" A computer analysis by the Joint Committee on Taxation found that
about one-fourth of all people with taxable incomes of $20,000 to
$30,000, and one third of those in the $30,000 to $40,000 range, might
end up paying more taxes under the Senate bill than they do now. But
the committee said 'serious flaws' in available data made it
'unwilling to stand behind' the estimate, and no other agency has
attempted a similar study...
... an Illinois family of five with a single worker earning $35,000 in
taxable income and taking no itemized deductions would see its tax
bill cut by about 29 percent--from $4,205 currently to about
$3,000--under both the Senate and House bills, according to David
Wright, general partner for national tax services at the accounting
firm of Coopers & Lybrand.
But an Illinois couple with two incomes totaling $35,000, no children
and typical deductions including home mortgage interest and real
estate taxes, a $1,000 IRA deposit, $1,800 in interest on consumer
loans and $875 in sales taxes would see its tax bill increase by 14.6
percent..."
source: TAX BILL FAIRER-FOR SOME MODERATE INCOMES BENEFIT THE LEAST
FROM TAX OVERHAUL; Chicago Tribune ; Jun 29, 1986; Christopher Drew

"Taxes would go up for:
* A married businessman with two children who makes heavy use of real
estate tax shelters. His taxes would rise by almost $10,000.
* A couple with two children and one income of about $150,000 who use
real estate tax shelters. The increase would be about $3,000.
* A couple at retirement age, the man having to sell his stock in the
company he works for at a $40,000 salary. The tax increase: almost
$2,000.
* A two-income family with $135,000 in salaries, a tax shelter and a
large amount of consumer debt interest. The increase: less than $400.
* A farm family, which would lose an investment tax credit and face an
increase in the self-employment tax.
* Under the tax bill, the current 15 tax brackets for single people
and 14 brackets for couples filing a joint return would essentially be
replaced by two brackets.
* The present rates, ranging from 11 percent to 50 percent, would be
changed to 15 percent for three-quarters of taxpayers and 28 percent
for most of the others. The 15 percent rate would apply to taxable
income up to $29,750 for joint filers.
* A few people, singles earning more than $41,000 and couples earning
more than $71,900, would pay a 34 percent rate on a portion of their
earnings. "
source:
"Tax Bill Like Elevator: Pinch Goes Up or Down"
Omaha World - Herald; Omaha, Neb.; Aug 24, 1986; Evan Roth

search strategy:
"medical expense deduction", "5 percent"
reagan, tax cut, "santa barbara", ranch
"tax reform", 1986, brackets, "more taxes"

I hope this helps. If anything is unclear, please use the "request
clarification" feature. Thanks.

---

Request for Answer Clarification by layah-ga on 24 Jun 2003 03:03 PDT

As far as the last part of my question goes, I realize that the effect
was different for different groups.  I specifically wanted to know
about single people in the 20-30 thousand dollar range.

I also suspect that there was an effect on this group in the earlier
tax changes, because I specifically remember columnists explaining the
wonderful new legislation that would save people money and make the
tax laws "fairer" (sounds like the 1982 tax change) ... and, oh yes, a
few groups would be paying more.  These groups included those with
high medical expenses, singles earning between 20 and 30 thousand a
year and two other groups that I happened to me a member of.  I was
pretty peeved at the time.  Since by 1986, I was earning more than
that, I can only assume that this occurred earlier.  Do you have any
info on what I'm talking about?

Thanks.

---

Request for Answer Clarification by layah-ga on 24 Jun 2003 05:25 PDT

OOPS!  My last request had a glaring error in it.  I stated that the
tax cut affecting single people earning between 20 and 30 thousand /
year could not have been in 1986 because I earned more than.  In fact
I earned over 30 thousand in 1982, but in 1985 I started a business
and so was earning less again in 1986.

My question still stands about how that tax cut affected single people
in the 20-30
thousand bracket.

BTW thanks for the information on the medical expense tax cut.  That
was the one that was most important to me.

---

Clarification of Answer by juggler-ga on 24 Jun 2003 13:35 PDT

I really believe that you're talking about the '86 cut.  The '81 cut
did not include the medical expense deduction change. As stated above,
that came with 1982's "TEFRA."  I've searched for some indication that
TEFRA raised taxes on singles earning between $20,000 & $30,000, and
thus far I've turned up nothing to that effect.

On the other hand, the '86 cut did include a medical expense change
and did raise taxes on SOME people earning between $20,000 & $30,000. 
The columnists' articles that you remember were probably referring to
the same analysis mentioned in the Chicago Tribune article cited
above:

"...A computer analysis by the Joint Committee on Taxation found that
about one-fourth of all people with taxable incomes of $20,000 to
$30,000, and one third of those in the $30,000 to $40,000 range, might
end up paying more taxes under the Senate bill than they do now."


I wish I could give you a blanket statement saying that taxes were
raised X% for every single person earning $20,000 to $30,000, but that
would be untrue.  As mentioned above, the 1986 tax increases had a lot
to do with the changes in allowed deductions. Thus, the impact on
someone in the $20,000-$30,000 would depend on the deductions that the
individual taxpayer was taking.  For example, the change in the IRA
deductions for people earning $20,000 to $30,000 would only affect
those people who were actually making IRA contributions. Similarly,
the elimination of the credit card interest deduction only affected
people who had credit card debt.  If you want to figure the exact
"before and after" taxes for a particular taxpayer,  you'll need to
take all of these factors into account.

See:

 Tax Reform Act of 1986
http://cwx.prenhall.com/bookbind/pubbooks/dye4/medialib/docs/tax1986.htm

"1986 Tax Reform Act"
http://www.crab.rutgers.edu/~mchugh/tax1986TaxReformAct1.doc


I hope this is clear. If you want to give me some specific details
(e.g., single person making exactly $25,000, no IRA contributions, no
credit card interest) I could try to figure the difference in tax
before the '86 law and after the '86 law for the specific taxpayer.
However, as I've said, I'd be misleading you if were to say that EVERY
taxpayer making $20,000 to $30,000 paid $XXX more in taxes.