ListMoto - Economic Recovery Tax Act Of 1981

--- Advertisement ---


The Economic Recovery Tax Act of 1981
Economic Recovery Tax Act of 1981
(Pub.L. 97–34), also known as the ERTA or "Kemp–Roth Tax Cut", was a federal law enacted in the United States
United States
in 1981. It was an act "to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purposes".[1] Included in the act was an across-the-board decrease in the marginal income tax rates in the United States
United States
by 25% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%. This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five-year period. Additionally the tax rates were indexed for inflation, though the indexing was delayed until 1985. The Act's Republican sponsors, Representative Jack Kemp
Jack Kemp
of New York and Senator William V. Roth Jr., of Delaware, had hoped for more significant tax cuts, but settled on this bill after a great debate in Congress. It passed Congress on August 4, 1981, and was signed into law on August 13, 1981, by President Ronald Reagan
Ronald Reagan
at Rancho del Cielo, his California ranch. In the year after enactment of ERTA, the deficit ballooned, which in turn, drove interest rates from around 12% to over 20%, which, in turn, drove the economy into the second dip of the 1978-82 "double dip recession". The Dow Jones average, which had been over 1000 before enactment of ERTA, fell to 770 by September 1982. Much of the 1981 ERTA was backed out in September 1982 by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), sometimes called the largest tax increase of the post-war period. The "Reagan recovery" began within weeks of enactment of TEFRA. This bill and the Tax Reform Act of 1986
Tax Reform Act of 1986
are known together as the Reagan tax cuts.[2]


1 Summary 2 Accelerated Cost Recovery System 3 Effect and controversies 4 References 5 External links

Summary[edit] The Office of Tax Analysis of the United States
United States
Department of the Treasury summarized the tax changes as follows:[3]

phased-in 23% cut in individual tax rates over 3 years; top rate dropped from 70% to 50% accelerated depreciation deductions; replaced depreciation system with ACRS indexed individual income tax parameters (beginning in 1985) created 10% exclusion on income for two-earner married couples ($3,000 cap) phased-in increase in estate tax exemption from $175,625 to $600,000 in 1987 reduced windfall profit taxes allowed all working taxpayers to establish IRAs expanded provisions for employee stock ownership plans (ESOPs) replaced $200 interest exclusion with 15% net interest exclusion ($900 cap) (begin in 1985)

The accelerated depreciation changes were repealed by Tax Equity and Fiscal Responsibility Act of 1982, and the 15% interest exclusion was repealed before it took effect by the Deficit Reduction Act of 1984. The maximum expense in calculating credit was increased from $2000 to $2400 for one child and from $4000 to $4800 for two or more kids. The credit increased from 20% or a maximum of $400 or $800 to 30% of $10,000 income or less. The 30% credit is diminished by 1% for every $2,000 of earned income up to $28000. At $28000, the credit for earned income is 20%. The amount a married taxpayer who files a join return increased under the Economic Recovery Tax Act to $125,000 from $100,000, which was allowed under the 1976 Act. A single person is limited to an exclusion of $62,500. It also increases the amount of a one time exclusion of gain realized on the sale of principal residence by a persons at least 55 years old.[4] Accelerated Cost Recovery System[edit] The Accelerated Cost Recovery System (ACRS) was a major component of the ERTA and was amended in 1986 to become the Modified Accelerated cost Recovery System. The system changed the way that depreciation deductions are allowed for tax purposes. Instead of basing the depreciation deduction on an estimate of the expected useful life of assets, the assets were placed into categories: 3, 5, 10, or 15 years of life.[5] For example, the agriculture industry saw a re-evaluation of their farming assets. Items such as automobiles and swine were given 3 year depreciation values, and things like buildings and land had a 15-year depreciation value.[6] The idea was that there would be a rise in tax cuts due to the optimistic consideration of depreciating values. This would in turn put more cash into the pockets of business owners to promote investment and economic growth.[7] Effect and controversies[edit] The most lasting impact and significant change of the Act was the indexing of the tax code parameters for inflation. Of the nine federal tax laws between 1968 and this Act, six were tax cuts compensating for inflation driven bracket creep.[3] Following enactment in August 1981, the first 5% of the 25% total cuts took place beginning on October 1, 1981. An additional 10% began on July 1, 1982, followed by a third decrease of 10% beginning on July 1, 1983.[8] As a result of ERTA and other tax acts in the 1980s, the top 10% were paying 57.2% of total income taxes by 1988, up from 48% in 1981, the bottom 50% of earners share dropping from 7.5% to 5.7% in the same period.[8] The total share borne by middle income earners of the 50th to 95th percentiles decreased from 57.5% to the 48.7% between 1981 and 1988.[9] Much of the increase can be attributed to the decrease in capital gains taxes, and the ongoing recession and subsequently high unemployment contributed to stagnation among other income groups until the mid-1980s.[10] Another explanation is any such across the board tax cut removes some from the tax rolls. Those who remain pay a higher percentage of a now smaller tax pie even though they pay less in absolute taxes. In addition to changes in marginal tax rates, the capital gains tax was reduced from 28% to 20% under ERTA. Afterwards revenue from the capital gains tax increased 50% by 1983 from $12.5 billion in 1980 to over $18 billion in 1983.[8] In 1986, revenue from the capital gains tax rose to over $80 billion; following restoration of the rate to 28% from 20% effective 1987, capital gains revenues declined through 1991.[8] Critics claim that the tax cuts worsened the deficits in the budget of the United States
United States
government. Reagan supporters credit them with helping the 1980s economic expansion[11] that eventually lowered the deficits. After peaking in 1986 at $221 billion the deficit fell to $152 billion by 1989.[12] Supporters of the tax cuts also argue, by using the Laffer curve, tax cuts increased economic growth and government revenue. That is hotly disputed, and critics note that the 6% rise in government income tax receipts was due to the 12% inflation rate, not tax cuts, and would have risen more if the tax cuts had not occurred. The Office of Tax Analysis estimates that the act lowered federal income tax revenue by 13%, relative to where it would have been in the bill's absence.[13] The non-Partisan Congressional Research Service (in the Library of Congress) issued a report in 2012, analyzing the effects of tax rates from 1945 to 2010. The CRS concluded that top tax rates have no positive effect on economic growth, saving, investment, or productivity growth; reduced top tax rates do, however, increase income inequality:[14]

The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.[15]

The cornerstone of discussing economic reform or ideology comes down to supply and demand. When looking at the demand through the idea of this Tax Act, it is apparent that those in favor were trying to give more money to people in lower tax brackets through the increased income from the top. Though this was supposed to be brought on with increased demand for goods among the lower sectors. What this actually did was put the government in a deficit situation, and the supposed increase in demand from the lower sector was one that did not play out exactly as expected. On the supply side of the spectrum, the records show that the increase in taxes did not raise the revenues of the economy, and in turn did not increase the consumerism of lower waged citizens. The idea was one that seemed promising, but the money would just start to collect at the top of the tax bracket and not be reinvested into the economy like the legislators thought.[16] Reagan came into office with a national debt around $900 billion. Reagan inherited office with high unemployment rates and a public distrust in government. The ERTA was designed to give tax breaks to all citizens in hopes of jumpstarting the economy and helping create more wealth in the country. By the summer of 1982, the double dip recession, return of high interest rates, and ballooning deficits had convinced Congress that the Act had failed to create the results that the Reagan administration hoped. Largely at the initiative of Senate Finance Committee chairman Robert Dole, most of the personal tax cuts were backed out in September 1982 by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). When Reagan left office, the national debt had tripled, to around $2.6 trillion. Sociologist Monica Prasad contends that these kinds of tax cuts became popular among Republican candidates because the cuts were well received by voters and could help candidates get elected. Prasad argues that such major tax cuts are the biggest cause for the current U.S. national deficit. The Economic Recovery Tax Act of 1981
Economic Recovery Tax Act of 1981
remains the largest tax cut in American history.[17] References[edit]

^ Pub.L. 97–34, 95 Stat. 172, enacted August 13, 1981) ^ Kessler, Glenn (10 April 2015). "Rand Paul's claim that Reagan's tax cuts produced 'more revenue' and 'tens of millions of jobs'". Washington Post. Retrieved 16 October 2015.  ^ a b Office of Tax Analysis (2003, rev. September 2006). "Revenue Effects of Major Tax Bills" (PDF). United States
United States
Department of the Treasury. Working Paper 81, page 12. Retrieved 2009-07-18.  Check date values in: date= (help) ^ http://heinonline.org/HOL/Page?handle=hein.journals/aklr15&div=24&g_sent=1&collection=journals# ^ Fullerton, Don, and Yolanda Kodrzycki Henderson, “Long-Run Effects of the Accelerated Cost Recovery System,” The Review of Economics and Statistics, vol. 67, no. 3, 1985, pp. 363–372, at [1]. ^ Batte, Marvin T. “An Evaluation of the 1981 and 1982 Federal Income Tax Laws: Implications for Farm Size Structure,” North Central Journal of Agricultural Economics, vol. 7, no. 2, 1985, pp. 9–19, at [2]. ^ [14]. ^ a b c d Arthur Laffer (1 June 2004). "The Laffer Curve: Past, Present, and Future". Retrieved 5 November 2010.  ^ Joint Economic Committee (1996). "Reagan Tax Cuts: Lessons for Tax Reform". Archived from the original on 26 February 2009. Retrieved 5 November 2010.  ^ Congressional Budget Office (1986). "Effects of the 1981 Tax Act". Retrieved 5 November 2010.  ^ "The Reagan Expansion >The Reagan Expansion". Ronald Reagan Information Page. Archived from the original on October 23, 2008. Retrieved 2009-05-03.  ^ FY 2011 Budget of the United States
United States
Government: Historic Tables. 2010. pp. 21–22. ISBN 978-0-16-084797-4.  ^ Office of Tax Analysis (2003, rev. September 2006). "Revenue Effects of Major Tax Bills" (PDF). United States
United States
Department of the Treasury. Working Paper 81, page 12. Retrieved 2009-07-18.  Check date values in: date= (help) ^ Rick Ungar, Non-Partisan Congressional Tax Report Debunks Core Conservative Economic Theory-GOP Suppresses Study, Forbes (Nov. 2, 2012) [3] ^ Congressional Research Service, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, [4] ^ Lindsey, Lawrence (1985). "The 1982 Tax Cut: The Effect of Taxpayer Behavior on Revenue and Distribution". Proceedings of the Annual Conference on Taxation Held under the Auspices of the National Tax Association-Tax Institute of America. 78: 111–118. JSTOR 42911671.  ^ Prasad, Monica (2012). "The Popular Origins of Neoliberalism in the Reagan Tax Cut of 1981". Journal of Policy History. 24 (3): 351–83. doi:10.1017/S0898030612000103. 

External links[edit]

Full text of the Act

v t e

Tax Acts of the United States

Internal Revenue

1861 1862 1864 1913 1916 1917 1918 1921 1924 1926 1928 1932 1934 1935 1936 1940 1940 (2nd) 1941 1942 1943 1943 1944 1945 1948 1950 1950 1951 1954 1954 Code 1962 1964 1968 1969 1971 1975 1976 1977 1978 1981 1982 Gas Tax 1984 COBRA 1986 1986 Code 1990 1993 1996 1997 1998 2001 2002 2003 2004 2005 2006 2008 Crisis 2009 2010 2012 2017


1789: Hamilton I 1790: Hamilton II 1792: Hamilton III 1816: Dallas 1824: Sectional 1828: "Abominations" 1832 1833: Compromise 1842: Black 1846: Walker 1857 1861: Morrill 1872 1875 1883: Mongrel 1890: McKinley 1894: Wilson–Gorman 1897: Dingley 1909: Payne–Aldrich 1913: Underwood 1921: Emergency 1922: Fordney–McCumber 1930: Smoot–Hawley 1934: Reciprocal 1948: GATT 1962 1974/75 1979 1984 1988 1988: Canada FT 1993: NAFTA 1994: WTO 2002: Steel 2018: Trump

v t e

Ronald Reagan

40th President of the United States
United States
(1981–1989) 33rd Governor of California
Governor of California

Life and politics

Birthplace Pitney Store Boyhood home Rancho del Cielo Filmography Presidential Library Death and state funeral Political positions Governship of California Namesakes and memorials Reagan Era


First inauguration Second inauguration Domestic policy Economic policy Economic Recovery Tax Act of 1981 Tax Reform Act of 1986 Assassination attempt Strategic Defense Initiative Foreign policy Reagan Doctrine Cold War

1st term 2nd term

1985 Geneva Summit 1986 Reykjavík Summit

INF Treaty

1987 Washington Summit 1988 Moscow Summit Invasion of Grenada Iran–Contra affair International trips The Grace Commission Cabinet Federal judicial appointments

Supreme Court controversies

Administration scandals "We begin bombing in five minutes"


Ronald Reagan
Ronald Reagan
Speaks Out Against Socialized Medicine "A Time for Choosing" Reagan's Neshoba County Fair "states' rights" speech First inaugural address Second inaugural address "Ash heap of history" "Evil empire" "Tear down this wall!" State of the Union: 1982 1983 1984 1985 1986 1987 1988


Where's the Rest of Me? (1965 autobiography with Richard G. Hubler) An American Life
An American Life
(1990 autobiography with Robert Lindsey) The Reagan Diaries
The Reagan Diaries
(2007, edited by Douglas Brinkley)


California gubernatorial election, 1966 1970 Republican Party presidential primaries, 1968 1976 1980 1984 Republican National Convention 1968 1976 1980 1984 Ronald Reagan
Ronald Reagan
presidential campaign, 1980

"There you go again" "Make America Great Again"

United States
United States
presidential election, 1976 1980 1984

"Morning in America" "Bear in the woods"

Popular culture

In fiction In music U.S. Postage stamps The Day Reagan Was Shot
The Day Reagan Was Shot
(2001 film) The Reagans
The Reagans
(2003 film) Reagan (2011 documentary) The Butler (2013 film) Killing Reagan (2016 film) "What would Reagan do?"


Jack Reagan
Jack Reagan
(father) Nelle Wilson Reagan
Nelle Wilson Reagan
(mother) Neil Reagan
Neil Reagan
(brother) Jane Wyman
Jane Wyman
(first wife) Nancy Reagan
Nancy Reagan
(second wife) Maureen Reagan
Maureen Reagan
(daughter) Michael Reagan
Michael Reagan
(adopted son) Patti Davis
Patti Davis
(daughter) Ron Reagan
Ron Reagan
(son) Rex (dog)

← Jimmy Carter George H. W. Bush
George H. W. Bush


Time at 25454805.25, Busy percent: 30
***************** NOT Too Busy at 25454805.25 3../logs/periodic-service_log.txt
1440 = task['interval'];
25456242.366667 = task['next-exec'];
0 = task['last-exec'];
daily-work.php = task['exec'];
25454805.25 Time.

10080 = task['interval'];
25464882.366667 = task['next-exec'];
0 = task['last-exec'];
weekly-work.php = task['exec'];
25454805.25 Time.

30 = task['interval'];
25454832.366667 = task['next-exec'];
0 = task['last-exec'];
PeriodicStats.php = task['exec'];
25454805.25 Time.

1440 = task['interval'];
25456242.366667 = task['next-exec'];
0 = task['last-exec'];
PeriodicBuild.php = task['exec'];
25454805.25 Time.

1440 = task['interval'];
25456242.366667 = task['next-exec'];
0 = task['last-exec'];
build-sitemap-xml.php = task['exec'];
25454805.25 Time.

60 = task['interval'];
25454862.366667 = task['next-exec'];
0 = task['last-exec'];
cleanup.php = task['exec'];
25454805.25 Time.

60 = task['interval'];
25454862.366667 = task['next-exec'];
25454802.366667 = task['last-exec'];
parse-contens.php = task['exec'];
25454805.25 Time.