Kemp-Roth Tax Cut
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| 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. |
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| 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 | |
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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 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 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.
This bill and the Tax Reform Act of 1986 are known together as the Reagan tax cuts.
The Office of Tax Analysis of the United States Department of the Treasury summarized the tax changes as follows:
The accelerated depreciation changes were repealed by Tax Equity and Fiscal Responsibility Act of 1982, and the 15% interest exclusion was repealed before it took effect by the Deficit Reduction Act of 1984.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.
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