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Kemp-Roth Tax Cut

The Kemp-Roth Tax Cut (officially the Economic Recovery Tax Act) of 1981 (ERTA) 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. The issue is whether in 1981 the United States was over- or under-taxed.



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