Economic Recovery Tax Act (ERTA)

The Economic Recovery Tax Act of 1981 (ERTA) contained numerous provisions that helped businesses and individuals. Businesses were aided by accelerated capital recovery through new depreciation rules, special tax treatment for acquirers of troubled thrift institutions, an increased amount of retained earnings not subject to taxation, relaxed rules for Subchapter S corporations, and encouragement of merger activity. However, ERTA is best known for a large reduction in personal income tax rates across the board. The act also helped individuals through a significant increase in the nontaxable portion of inheritances and gifts and by raising the maximum limits on [Page 1025]contributions to individual retirement accounts and Keogh Accounts for the self-employed.

ERTA was the first major legislative activity in President Reagan’s administration. He came into office at ...