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Reagan 1982
ERTA Tax Act
The most important changes to the personal tax code since the World War II
rate increases came during the Reagan administration in 1982. Seeking ways to
stimulate the economy and encourage growth in investment, President Reagan
proposed in the Economic Recovery Tax Act (ERTA) of 1981 the reduction of the top
tax rates by almost 30 percent, from 70 to 50%- and all other tax rates by
approximately 23 percent over a three-year period. The act also required that tax
brackets be adjusted for inflation each year to address “bracket creep”, the phenomenon
whereby people’s incomes increase due to inflation, pushing them into higher tax
brackets without any action by Congress though their purchasing power may not have
increased. General tax revenues would no longer automatically increase with inflation,
forcing Congress to enact tax increases if it needed to raise revenues.
This plan, argued Reagan and his economic advisors, would cause business and
entrepreneurs to expand investment in the economy, increasing jobs and capital
expansion, thus increasing overall government revenues. Others argued that because
the top rates would decrease, the tax cut favored the richest taxpayers at the expense of
the middle class and poor. Coupled with huge increases in defense spending, many
feared the budget deficits would grow worse.
Reagan pushed the bill through Congress, and the bill passed in late 1981.
Reagan signed the bill on August 13, 1981.Even as the federal budget deficits continued
to grow, due to a decrease in federal revenues and to expanded Federal spending, the
economy began to recover. Tax cuts as economic policy became a major theme in the
following years, with Presidents using the promise of cuts to encourage economic
growth, balance the budget, and shift spending from Federal programs to state
initiatives.
History of Income Tax
http://www.house.gov/jec/fiscal/tx-growth/reagtxct/reagtxct.htm