One Year Later: Despite Dire Forecasts, The 1986 Tax Revision Inflicts Little Damage --- Capital Spending Holds Up, As Do Charitable Gifts; But Tax Shelters Dwindle --- Some Benefits Still to Come
WASHINGTON -- General Motors Corp. Chairman Roger Smith, who was criticized last year by fellow industrialists for enthusiastically backing tax overhaul, now feels vindicated. "All the bad things that people predicted would happen, didn't happen," he says.</br></br>"I can't really disagree with that," admits Charls Walker, a heavy-industry lobbyist who a year ago predicted that the law, which slashed tax rates and trimmed deductions and credits, might cause a recession. "I thought it would have had a bigger impact by now."</br></br>Today, exactly one year after President Reagan signed the Tax Reform Act of 1986, the law still sparks controversy, however. Some critics of the legislation are blaming it for the recent stock-market plunge, which could stall economic growth. Kenneth Hagerty, a lobbyist for the venture-capital industry, has already started making rounds on Capitol Hill, arguing that the elimination of the tax break for long-term capital gains contributed to the crash.</br></br>But it now seems clear that the dire economic consequences of the tax overhaul were greatly exaggerated. The economy's surprising strength over the past year suggests that recent problems have little to do with that sweeping legislation. "There will be people who say tax reform caused the market drop," says Joseph Minarik, an economist at the Urban Institute, "but that's ridiculous."</br></br>Indeed, whatever the ultimate effects of the market's plunge, it will probably serve to reinforce the basic lesson of the past 12 months: that the economic impact of even radical tax changes can easily be overwhelmed by other events.