Economic Recovery Tax Act

Economic Recovery Tax Act of 1981

Long title	An act to amend the Internal Revenue Code of 1954 to encourage economic growth through reduction of the tax rates for individual taxpayers, acceleration of the capital cost recovery of investment in plant, equipment, and real property, and incentives for savings, and for other purposes.
Acronyms (colloquial)	ERTA
Nicknames	Kemp-Roth Tax Cut
Enacted by	the 97th United States Congress
Effective	August 13, 1981
Citations
Public law	97-34
Statutes at Large	95 Stat. 172
Legislative history
Introduced in the House as H.R. 4242 by Dan Rostenkowski (D-IL) on July 23, 1981 Committee consideration by House Ways and Means, Passed the House on July 29, 1981 (323–107) Passed the Senate on July 31, 1981 (voice vote) Reported by the joint conference committee on August 1, 1981; agreed to by the Senate on August 3, 1981 (67–8) and by the House on August 4, 1981 (282–95) Signed into law by President Ronald Reagan on August 13, 1981

The 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 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". Included in the act was an across-the-board decrease in the marginal income tax rates in the United States by 23% 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 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 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 1980-82 "double dip recession". The Dow Jones average, which had been over 1000 before enactment of ERTA, fell to 770 by September 1982.

This bill and the Tax Reform Act of 1986 are known together as the Reagan tax cuts.

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