The first tax cut among other things, cut the highest Personal Income Tax rate from 70% to 50% and the lowest from 14% to 11% and decreased the highest Capital Gains Tax rate from 28% to 20%.
The second tax cut among other things, cut the highest Personal Income Tax rate from 50% to 38.5% but decreasing to 28% in the following years and increased the highest Capital Gains Tax rate from 20% to 28%.
At the time, people weren't credibly informed about the tax cuts as an ABC News Poll in September 1986 showed that 63% of Americans, didn't know enough about the Tax Reform Act of 1986 to say if it was good or bad.
Historical Tax Rates
The Personal Income tax rates went up massively during World War I. These taxes were quickly cut massively in the 1920s and revenues continued to climb. However, The Great Depression caused the economy to start failing and the revenues went down. President Herbert Hoover wanted programs to help the people. So in the Revenue Act of 1932 the top marginal tax rate was raised from 25% to 63%. These increases were not reduced under FDR and the taxes even went above 90% during World War II for the largest tax bracket. Unlike post-World War I, the taxes weren't massively cut and stayed that high for decades. During this time the Social Security Act created a Social Security tax, adding more to the taxes paid by individuals. It wasn't until 1964 that the taxes were finally decreased in the Revenue Act of 1964. In that act, there were tax cuts all around the board including the top rate lowering from 91% to 70%. The tax rates continued to go up and down in the late '60s and '70s. Due to high inflation and inflation-adjusted tax bracket changes being slow, there was high demand for a tax cut. In 1980 Reagan promised those cuts and over his next 2 terms, he cut taxes to the lowest since the 1920s when the top Personal Income Tax rates were lowered from 73% to 25% in the Revenue Act of 1921, the Revenue Act of 1924, and the Revenue Act of 1926. When the tax cuts were finally put into the tax code, one of the longest peacetime expansions in history began.
After the Economic Recovery Tax Act of 1981 revenues fell by 6% in real terms. This promoted a tax increase that passed the House in late 1981 and the Senate in mid-1982 called the Tax Equity and Fiscal Responsibility Act of 1982. This act was an agreement between Reagan and the Congress that raised revenues for the following years. Following that increase, there were 3 other tax increases from 1983-1987 for other various reasons. In total, the US lost over $200 billion in 2012 chained dollars due to the original tax cut in the first four years and around $1 billion for the second tax cut. The four tax increases from 1982-1987 added a total of $137 billion in revenue which adds up to roughly $64 billion in net revenue lost because of the cuts.
