June 10, 2004, 2:30 p.m.
What Do The Wealthy Pay?
By Ed Rubenstein

EDITOR'S NOTE: The August 31, 1992, issue of National Review, set out to set the record straight about the Reagan administration's economic record. We reprint the content of the issue here.

Myth: The 1986 tax act was pro-rich.

"When Congress enacted the Tax Reform Act of 1986, lawmakers hailed its alternative minimum tax provision as the most stringent ever, guaranteeing that nobody would ever escape paying at least some tax . . . [But] passage of "the toughest minimum tax ever' resulted in a 75 per cent drop in the number of people who paid the tax, and a 90 per cent drop in the amount they paid.

"On average, a millionaire in 1986 paid an alternative minimum tax of $116,395. Three years later, a millionaire paid $54,758. That amounted to a 53 per cent tax cut."
-Barlett and Steele,
Philadelphia Inquirer,
October 1991

This is a schoolboy howler of such proportions that if the authors had been correct on everything else, their reputations would still be in ruins. They note — correctly — that fewer millionaires pay the Alternative Minimum Tax today than before the 1986 tax reform, and that those who do generally pay less AMT than before the 1986 act. However, rather than indicating an "illusory" tax hike on the rich, lower AMT payments reflect a more progressive tax system.

AMT payments rise or fall in lock-step with the number of tax loopholes or "tax preferences" available to wealthy taxpayers. (The minimum tax is designed to curtail the benefits of such exemptions.) The 1986 reform eliminated many of these loopholes, including passive real-estate tax shelters and the preferential tax treatment for capital gains. Thus while AMT payments fell after 1986, the total amount of personal income taxes collected from wealthy taxpayers rose dramatically:

Taxes paid by individuals earning $100,000 and above rose by more than $50 billion within three years of the 1986 tax act; their share of total income taxes rose from 29.0 per cent in 1986 to 35.9 per cent in 1989.

It following that people earning less than $100,000 paid a smaller share of income taxes in 1989 than in 1986.

— Mr. Rubenstein is NR's economic analyst.