Reagan Tax Cut 1981

About Reagan Tax Cut 1981

The Economic Recovery Tax Act of 1981, signed by President Reagan, was the largest tax cut in US history. The act reduced individual income tax rates by 25 percent over three years. The top marginal rate was cut from 70 percent to 50 percent. Capital gains taxes were cut from 28 percent to 20 percent. The act also indexed tax brackets to inflation, preventing bracket creep. Reagan argued that lower tax rates would stimulate economic growth, a theory known as supply side economics or Reaganomics. The tax cuts contributed to large budget deficits, which reached 6 percent of GDP in 1983. The Tax Reform Act of 1986 further lowered the top rate to 28 percent. The Reagan tax cuts fundamentally changed the debate about taxation in American politics.