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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. Seeking ways to stimulate the
economy and encourage 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 a reduction in all other tax rates by approximately 23
percent. These decreases were supposed to take effect over a three-year period. At the
same time, tax brackets were to be adjusted for inflation each year in an attempt to halt
“bracket creep,” the phenomenon whereby incomes increase due to inflation — pushing
individuals into higher tax brackets without any action by Congress — while purchasing
power remains potentially unaffected. ERTA stipulated that general tax revenues would
no longer increase automatically with inflation, forcing Congress to go through the
difficult process of enacting tax increases, if needed, to raise revenues.
Reagan and his economic advisers argued that ERTA would lead business and
entrepreneurs to expand investment and generate more jobs, increasing overall revenues
in the process. Others argued that because the top tax rates would decrease, the cut
favored the richest taxpayers at the expense of those in the middle and lower
socioeconomic brackets. Many feared that these cuts, coupled with huge increases in
defense spending, would lead to even larger budget deficits.
Reagan pushed the bill through Congress in early 1982. While deficits continued
to grow, due to a decrease in federal revenues and 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