Tax Equity and Fiscal Responsibility Act of 1982
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The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), a United States federal law, rescinded some of the effects of the Economic Recovery Tax Act (ERTA, colloquially known as the Kemp-Roth Tax Cut) passed the year before.
The scheduled increases in accelerated depreciation deductions were repealed, a 10 percent withholding on dividends and interest paid to individuals was instituted, and the Federal Unemployment Tax Act wage base and tax rate were increased. Excise taxes on cigarettes were temporarily doubled, and excise taxes on telephone service temporarily tripled, in TEFRA.[1]
President of the United States Ronald Reagan agreed to the tax hikes on the promise from Congress of a $3 reduction in spending for every $1 increase in taxes. Some conservatives claim that the promised spending reductions never occurred. Then-budget director David Stockman, however, states that Congress substantially upheld its end of the bargain, and cites the Administration's failure to identify management savings and its resistance to defense spending cuts as the key impediments to greater outlay savings.[2]
In 1988, libertarian political writer Sheldon Richman described TEFRA as "the largest tax increase in American history".[3] In 2003, former Reagan adviser Bruce Bartlett wrote in the National Review that "TEFRA raised taxes by $37.5 billion per year", elaborating, "according to a recent Treasury Department study, TEFRA alone raised taxes by almost 1 percent of the gross domestic product, making it the largest peacetime tax increase in American history."[4]
A chart from the United States Department of the Treasury study[5] showing the bill's effect on government revenues is reproduced below. As it shows, the TEFRA increased tax revenues by almost 1% (0.98%) of GDP, in marked contrast to the 1981 tax cuts and the milder effects of the other Reagan-era tax bills:
| Number of years after enactment | ||||||
| Tax bill | 1 | 2 | 3 | 4 | First 2-yr avg | 4-yr avg |
|---|---|---|---|---|---|---|
| Economic Recovery Tax Act of 1981 | -1.21 | -2.60 | -3.58 | -4.15 | -1.91 | -2.89 |
| Tax Equity and Fiscal Responsibility Act of 1982 | 0.53 | 1.07 | 1.08 | 1.23 | 0.80 | 0.98 |
| Highway Revenue Act of 1982 | 0.05 | 0.11 | 0.10 | 0.09 | 0.08 | 0.09 |
| Social Security Amendments of 1983 | 0.17 | 0.22 | 0.22 | 0.24 | 0.20 | 0.21 |
| Interest and Dividend Tax Compliance Act of 1983 | -0.07 | -0.06 | -0.05 | -0.04 | -0.07 | -0.05 |
| Deficit Reduction Act of 1984 | 0.24 | 0.37 | 0.47 | 0.49 | 0.30 | 0.39 |
| Omnibus Budget Reconciliation Act of 1985 | 0.02 | 0.06 | 0.06 | 0.06 | 0.04 | 0.05 |
| Tax Reform Act of 1986 | 0.41 | 0.02 | -0.23 | -0.16 | 0.22 | 0.01 |
| Omnibus Budget Reconciliation Act of 1987 | 0.19 | 0.28 | 0.30 | 0.27 | 0.24 | 0.26 |
| Total | 0.33 | -0.53 | -1.63 | -1.97 | -0.10 | -0.95 |
[edit] References
- ^ Congressional Budget Office, "The Economic and Budget Outlook: Fiscal Years 1984-1988" (February 1983).
- ^ Stockman, David A., "The Triumph of Politics: Why the Reagan Revolution Failed" (Harper and Row, 1986), pp. 368-369.
- ^ The Sad Legacy of Ronald Reagan
- ^ Bruce Bartlett. "A Taxing Experience", National Review, 2003-Oct-29.
- ^ a b Office of Tax Analysis (2003, rev. Sept 2006). "Revenue Effects of Major Tax Bills". United States Department of the Treasury. Working Paper 81, Table 2.
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