Economic Recovery Tax Act

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Economic Recovery Tax Act

United States legislation, passed in 1981 and signed by President Ronald Reagan that cut marginal tax rates significantly. For example, it cut the top tax rate from 70% to 50% over three years and the bottom rate from 14% to 11%. The Act was intended to stimulate economic growth by putting more money in people's pockets; this concept is a key component of what became known as Reaganomics. Government revenue declined by nearly 3% of GDP as a result of the Act. It is also called the Kemp-Roth tax cut after its two principal sponsors in Congress.
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ERTA was also known colloquially as the "Kemp-Roth plan" for its legislative proponents, Jack F.
As noted, the tax years at issue were prior to the amendment of the depreciation rules by ERTA and the TRA.
In general, the value of property bequeathed to charities, as a percentage of total gross estate, was lower in the years immediately following the passage of ERTA in 1981 than in 1976.
9) Thus, ERTA rejected narrower definitions of credit-eligible expenditures in earlier versions of the bill.
The Joint Committee on Taxation (JCT), which is responsible for estimating the revenue effects of all legislation being considered by Congress, predicted that by 1984 ERTA would result in a revenue loss of $148 billion compared to the revenues expected under pre-ERTA law.
ERTA eliminated preferential treatment of capital gain for rental housing, reduced the depreciation period for investment properties, and imposed 'passive loss' restrictions on using losses from investment properties to offset tax liability on ordinary income.
During the period of 1982-1985, utilities that qualified under ERTA, thus allowing their participants to benefit from tax deferrals, have a larger percent participation, on average, than utilities that did not qualify under ERTA.
Besides cutting tax rates and greatly accelerating depreciation schedules, ERTA indexed many provisions of the tax code for inflation.
In particular, the 1981 ERTA imposed many of the implicit taxes that put foreign investors at a disadvantage.
ERTA thus created the environment in which the limited partnership or syndication of real estate properties could once again flourish, and the necessary funds were available.
In short, two-thirds of the rise in the poverty rate occurred before Reagan's tax and budget policies could take hold, and all the rise occurred before ERTA [the Economic Recovery Tax Act of 1981] was fully in place.