The Tax Equity and Fiscal Responsibility Act and Politics

TEFRA (Tax Equity and Fiscal Responsibility Act) serves as tax legislation by the federal government introduced in 1982 with the goal of modifying certain aspects of the 1981 ERTA (Economic recovery Tex Act). The two tax legislations were apparent during the presidency of Ronald Reagan. In gaining better understanding of TEFRA, understanding the ERTA is essential. ERTA serves as a form of tax legislation, which significantly reduced the rates of income tax whereas the considerably higher rates did not go beyond 50 percent. The introduction of TEFRA adjusted certain ERTA’s facets that raised worries over huge budget deficits. TEFRA raised the received tax as opposed to rates of tax. The process was carried out through eliminating certain tax breaks enterprises attained in ERTA, including rise in accelerated depreciation amount, which a firm would deduct (Ippolito, 2012) . 

On the creation of TEFRA, it is vital to understand the reasons behind its development. From the summers of 1981 to the summer of 1982, for instance, revenue generated from tax declined by around 6 percent in real terms, which resulted from the economy’s dual effects going back to a recession and minimizing of tax rates by Kemp-Roth. The impact was growing fast due to the decline in revenue and the rising spending by the government. The rapid growth in budget deficit resulted in the emergence of concerns among many Congress members. For TEFRA, therefore, was established with the goal of minimizing the budget gap through the generation of funds via closing loopholes in the tax system, introducing harsh rules concerning the enforcement of tax, withdrawing certain reductions by Kemp-Roth in tax rates affecting marginal personal income (those not effective yet), and raising certain rates, particularly corporate rates. For the Republicans, it serves as the party that introduced TEFRA. Originally, the TEFRA bill aimed at lowering taxes. Nonetheless, the Senate, which was under the control of Republicans, substituted the initial bill’s text with several tax raises, while President Reagan signed it into law (Ippolito, 2012).

Reference

Ippolito, D. S. (2012). Deficits, debt, and the new politics of tax policy. Cambridge: Cambridge University Press.