United States Tax History

American tax law is a constantly changing landscape. The latest major piece of tax legislation is the 2010 Tax Relief Act. It extended many of the provisions from the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. It included a two-year extension of the federal income tax rates that have been in effect since 2003 (10% to 35%) and extended the long-term capital gains tax rate at 15 percent. The Act also reinstated the federal estate tax, which had been repealed for one year, with a 35 percent top tax rate and $5 million exemption (indexed for inflation after 2011) through 2012; the exemption is $5.12 million in 2012.

EGTRRA was signed into law by President Bush on June 7, 2001. This bill provided the largest tax cut in two decades. Previous administrations have enacted other major tax packages. In the 1980s, the Reagan administration passed the Tax Reform Act of 1986. It not only reduced maximum tax rates and the number of federal income tax brackets but also eliminated many loopholes that existed in the tax code.

The Clinton administration also passed major tax legislation. The Revenue Reconciliation Act of 1993 eliminated some of the changes in the 1986 tax act and added two new federal income tax brackets to the existing three, with the top rate hitting 39.6%. The Taxpayer Relief Act of 1997 incorporated many reforms, including the reduction of long-term capital gains taxes and creation of the child and education tax credits, the Roth IRA, and the Education IRA, among other provisions.

Whenever major changes affect the tax law, there are potential ways that taxpayers can benefit their personal financial situations.

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