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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