Kemp-Roth Tax Cut
The
Kemp-Roth Tax Cut (officially the Economic Recovery Tax Act, or ERTA) of
1981 reduced marginal income tax rates by 25% over three years and indexed them for inflation. Its advocates Representative
Jack Kemp and Senator
William Roth had hoped for more significant tax cuts. These cuts are widely blamed for the deficits in the budget of the United States government in the
1980s and early
1990s, although deficits had been around since
1969. They are credited with helping the
1980s economic expansion however. The theory underlying the tax cut, the
Laffer Curve suggested that there was a revenue maximizing tax rate, tax too much, and output (and tax revenue) decrease, tax too little and though output increases, tax revenue still falls. Controversy still remains as to whether in
1981 the
United States was over- or under-taxed.