Economic Recovery Tax Act Of 1981 - ERTA
Categories: Econ, Regulations
The Economic Recovery Tax Act of 1981 (or ERTA, or the “Kemp-Roth Tax Cut”) was signed into law by President Reagan. It’s known for being the largest tax cut in US history, especially for wealthy Americans, with the top tax rate being cut 20% (the lowest tax bracket was cut only 3% for comparison). Plus, the capital gains tax was cut from 28% to 20%, and the estate tax exemption was raised.
Besides helping Americans—mostly wealthy Americans—roll in the dough, the Economic Recovery Tax Act of ‘81 also expanded eligibility for IRAs, accelerated depreciation deductions that could be taken, and created some small business incentives.
What was ERTA trying to do? In short, ERTA was created with the idea of “trickle-down economics” in mind, which means that money from the wealthiest will trickle down to lower-income classes. It’s saying "you don’t need to tax the wealthy to redistribute wealth to society...it will happen naturally."
At the time, ERTA didn’t give the economy the facelift that pro-ERTA people were hoping for...unemployment was still up, consumers weren’t spending more, and businesses weren’t investing more. Actually, a recession happened soon before the bill, and again after the bill was passed, which has been called a “double-dip recession.” Ouch.
All these years later, the nonpartisan Congressional Research Service (in 2012) and economic analysts around the world (for the past couple decades) largely agree: it’s looking like cutting taxes for the wealthiest Americans had no effect on economic growth or worker productivity—rather, it just made the rich richer and the poor poorer, increasing inequality.
Maybe it’s time to try trickle up? What would that look like, anyway...?
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Finance: What is the Tax Reform Act of 1...4 Views
Finance a la shmoop what is the Tax Reform Act of 1986 ah it was a simpler
time Democrats and Republicans working [Politicians jumping up and down]
together shaking hands across the aisle then sharing mistresses well the tax
reform act of 86 was the on-court - the act of 81 wherein Ronald Reagan moved to [Reagan appears]
dramatically simplify tax codes he cut taxes but somehow these cuts were to be
revenue-neutral to the taxman and go figure that one like cutting taxes would [Revenue forms cut in half]
stimulate business which it did which then generates more income which is then
taxed more something like that that's the logic anyway well a big theme of
these tax cuts was to shift the burden from individuals paying very high
marginal tax rates Thank You comrade Jimmy Carter to corporations many of [Jimmy Carter in office]
which had found loopholes so that billions of dollars were avoided in
paying taxes kind of like today's Apple and Google basing themselves in Ireland
and individuals paid with their liver and lungs in those days comrade Carter [Man holding liver at hospital desk]
had imposed a 50% plus top rate which kicked in at a relatively low dollar
level like you were wealthy if you earned more than a hundred grand a year
today's dollar adjusted Reagan brought that top rate down to 38 percent on its [Man bumps into Reagan]
way over time down to 28% and consolidated 15 different break points
in tax to being just four and yes the people at H&R Block wept they'd had it
great with the complex Carter era accounting gravy train there well a ton [Person dealing cash]
of other things were simplified and codified with the theme being that the
new IRS was gonna go after you if you didn't pay up it's like they're cutting [Woman running in woods screaming]
your fees so you better at least pay the low rates here these days on taxes yeah
and audit volumes increased dramatically why?
well since taxes were now so much easier to pay you'd better stop finding lies in
trickery and other deceitful ways to avoid paying you're legally owed
obligations luckily this tax reform act clarified and finalized resource
allocation debates as driven by taxes forever so that after 1986 while there
were no more debate about tax changes and everything from [Red siren alarm appears]
there forward for the next few hundred years won't need to change a lick oh
wait actually the opposite is happening always [Politicians boxing each other]