The Economic Recovery Tax Act of 1981 (Pub.L. 97-34), also known as the ERTA or "Kemp-Roth Tax Cut," was a federal law enacted in the United States in 1981. It was an act "to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purposes". Included in the act was an across-the-board decrease in the marginal income tax rates in the U.S. by 23% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%. This act slashed estate taxes and trimmed taxes paid by business corporations by $150 billion over a five-year period. Additionally the tax rates were indexed for inflation, though the indexing was delayed until 1985.
The Act's sponsors, Representative Jack Kemp of New York and Senator William V. Roth, Jr. of Delaware, had hoped for more significant tax cuts, but settled on this bill after a great debate in Congress. It passed Congress on August 4, 1981 and was signed into law on August 13, 1981 by President Ronald Reagan at Rancho del Cielo, his California ranch.
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