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In August 1997, United States President Bill Clinton signed a tax-reform bill meant to balance the US budget and make massive changes to the economic policy of the federal government. It was passed by a large majority of the United States Congress, receiving a 90% majority in the House of Representatives and a 92% majority in the Senate. The Taxpayer Relief Act of 1997
One of the largest changes made by the Taxpayer Relief Act of 1997 was a major reduction in capital gains taxes. Capital gains are the profit made by selling real estate, bonds or stocks. Under the new policy, sellers in the highest tax bracket would be taxed 20%, down from 28%, while people in the 15% tax bracket would now be charged only a 10% tax. The capital gains cut was meant to stimulate economic growth by encouraging people to sell more frequently, and increase tax revenues as a result of the higher rate of selling.
Another important feature of the Taxpayer Relief Act of 1997 was the child and education tax credits. The new law provided a $400 US Dollars (USD) tax credit for each child, which increased to $500 in 1999. For lower-income families with several children, this meant they could more easily offset their state and federal income tax and may have increased their returns. The HOPE education credit and Lifetime Learning credit both gave tax credits of between $1000-$2000 (USD) per year for the first two years of college. Both the child and education credits were phased out for high income earners, meant to benefit the working and middle classes.
The Taxpayer Relief Act of 1997 also established the popular Roth Individual Retirement Account (IRA.) Unlike traditional IRA systems, contributions to the retirement account were not tax deductible, but did allow tax free withdrawals after five years. They were meant to provide a good choice for younger savers who might need to withdraw money for purchasing first houses or paying for education. As such, the Roth IRA had fewer restrictions than its predecessor.
All told, the Taxpayer Relief Act of 1997 had more than 800 changes to the tax system, and is widely considered as one of President Clinton’s biggest contributions to America. The additions and changes seem endless, and cover a huge variety of areas. Among its new policies included making health insurance 100% tax deductible by 2007, allowing higher tax exemptions for farms and small businesses, raising the estate tax exemption from $600,000 to $1 million USD by 2006, and exempting profits from taxation for some home sales.
The passing of the Taxpayer Relief Act of 1997 unarguably helped President Clinton fulfill his campaign promises to balance the federal budget. Although the act was very complicated and required proper understanding to get the most benefit, it did manage to save many people money and helped give the United States one of the largest economic booms of the country’s history. Many experts consider the law a landmark, and many credit President Clinton for his insistence on its creation.
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