Dan Rostenkowski - Major Legislation Enacted During Chairmanship

Major Legislation Enacted During Chairmanship

Economic Recovery Tax Act of 1981, Public Law. 97-34 (August 13, 1981). The 1981 Act encouraged economic growth to the slumping economy by reducing individual income tax rates, permitting the expensing of business investments, and increasing incentives for individual savings. Specifically, the 1981 Act • reduced the top individual income tax rate to 50% and maximum capital gains rate to 20%. • indexed all the income tax brackets, person exemptions, and standard deductions • provided more rapid depreciation of business investments • expanded the eligibility for individual retirement accounts (“IRAs”) and increased the annual contribution limit to IRAs to $15,000. • updated estate and gift taxes by permitting an unlimited marital deduction, increasing the estate tax exemption to $600,000, and reducing the top estate tax rate to 50%.

Tax Equity and Fiscal Responsibility Act of 1982, Public Law. 97-248 (September 3, 1982). The 1982 Act addressed the burgeoning budget deficit by raising revenue by approximately $100 billion. It was the first of several critically important deficit-reduction bills enacted during the Rostenkowski chairmanship. The 1982 Act accomplished this goal by eliminating many unintended and obsolete tax incentives, and by strengthening the individual minimum tax on high-income individuals.

Social Security Amendments of 1983, Public Law. 98-21 (April 20, 1983). The 1983 Social Security Act provided solvency for the social security system which was facing bankruptcy before the enactment of this critical bill. Specifically, the 1983 Act secured the financial solvency of the Social Security Trust Fund by providing a dependable stream of revenues to the Trust Fund and by rationalizing the benefit structure including the retirement age determining benefit eligibility.

Interest and Dividends Tax Compliance Act of 1983, Public Law. 98-67 (August 5, 1983). The 1983 Act repealed the requirement for withholding on interest and dividends, replacing that system with a system of “backup withholding” and expanded information reporting. The 1983 Act also enacted various tax and trade incentives to encourage economic development in the Caribbean Basin countries.

Deficit Reduction Act of 1984, Public Law. 98-369 (July 18, 1984). The 1984 Act was another deficit reduction bill driven by two main concerns: (1) the threat to the economy posed by increasing budget deficits and (2) the erosion of the tax base due to the pervasive use of tax shelters. The 1984 Act raised revenues by $50.7 billion over a four-year period. Specifically, the 1984 Act • deleted a variety of tax provisions that were scheduled to take effect in 1984 • increased excise taxes on distilled spirits • reduced various tax shelters used by corporations and businesses to inappropriately reduce their taxes • significantly reformed the taxation of life insurance companies to treat them more like other corporations. • reformed the taxation of U.S. persons working abroad and foreign corporations doing business in the United States. • reduced the holding period required to qualify for long-term capital gains taxation from one year to six months.

Consolidated Omnibus Budget Reconciliation Act of 1985, P.L. 99-272 (April 7, 1986). “COBRA” was focused primarily on health insurance issues. It required that employers provide their employees with continued health insurance coverage when they leave their jobs. The Act also expanded unemployment benefits. To pay for these benefit expansions, the Act permanently extended the 16 cents per pack cigarette excise tax, imposed an excise tax on smokeless tobacco, and increased the excise tax on coal production.

Superfund Amendments and Reauthorization Act of 1986, P.L. 99-499 (October 17, 1986). The 1986 Superfund Act imposed taxes on polluting industries such as chemical and petroleum companies to finance the cleanup of toxic waste sires and leaking underground storage facilities. Specifically, the Act imposed taxes on chemicals, domestic crude oil, imported petroleum and other polluting fuels.

Tax Reform Act of 1986, Public Law. 99-514 (October 22, 1986). The 1986 Tax Reform Act was “landmark” legislation, providing comprehensive reform of the federal tax system with the goal of creating a fairer, more efficient, simpler, and more transparent system. It drastically reduced the number of deductions and tax brackets. The sharp decrease in the tax rates applicable to individuals and corporations meant that many other tax preferences (which benefited a small percentage of taxpayers) were no longer necessary. Specifically,the 1986 Act lowered the top individual marginal tax rate to 28%; increased the standard deduction to $5,000 for married couples; increased the personal exemption to $2,000; and increased the earned income tax credit (“EITC”). Capital gains were taxed at the same rate as ordinary income. • instituted limitations on the use of losses from passive investments by individuals to shelter other types of income. It also expanded AMT. • repealed many complex itemized deductions • limited deductions for interest on consumer loans, business meals and entertainment, and miscellaneous expenses. • reduced the top corporate tax rate to 34% (the lowest level of any industrialized country at the time), tightened corporate minimum tax, eliminated the investment tax credit and lengthened depreciation periods for capital investments. • expanded the research and development tax credit and enacted a new tax incentive for investments in low-income housing and, • created a deduction for the health insurance costs of self-employed individuals.

Omnibus Budget Reconciliation Act of 1987, Public Law. 100-203 (December 22, 1987). The 1987 Act was passed as another deficit reduction bill to raise $12 billion of revenue through various tax changes affecting corporations. Specifically, the 1987 Act (i) reformed and strengthened the tax provisions governing corporate mergers and acquisitions; (ii) repealed the use of the “completed contract method of accounting” by large defense contractors; (iii) limited the use of the installment sales method of accounting; and (iv) reduced the deduction for dividends paid by one corporation to another; and (vi) accelerated corporate estimated tax payments. The 1987 Act also imposed a $1 million limit on the mortgage interest deduction.

Medicare Catastrophic Coverage Act of 1988, Public Law. 100-360 (July 1, 1988). The 1988 Catastrophic Act focused on providing protection against catastrophic medical expenses under Medicare. Specifically, the Act expanded the Medicare program to provide protection against catastrophic medical expenses and for the first time, provided coverage under the Medicare program for prescription drugs. To pay for these benefit expansions, a new supplemental premium tax on all persons eligible for Medicare was enacted. After massive protests by seniors, the law was essentially repealed the next year.

Omnibus Budget Reconciliation Act of 1989, Public Law. 101-239 (December 19, 1989). The 1989 Act was yet another deficit-reduction bill which made several changes to the corporate tax provisions of the Code. Specifically, the 1989 Act • limited tax deductions for employee stock ownership plans (ESOPs) • increased certain excise taxes on air travel, ozone-depleting chemicals, and oil spills • fully repealed the completed contract method of accounting for long-term contracts of defense contractors, and • extended a variety of expiring tax provisions including the R&D credit, certain energy credits, mortgage revenue bonds, and the low income housing credit.

Omnibus Budget Reconciliation Act of 1990, Public Law. 101-508 (November 5, 1990). The 1990 Act was a major deficit-reduction bill which reduced the deficit by increasing: • excise taxes on certain luxury goods including cars over $30,000, boats over $100,000, airplanes over $250,000, and furs over $10,000. It increased • excise taxes on gasoline and motor fuels • excise taxes on tobacco and alcoholic beverages • excise taxes funding the Airport and Airway trust fund taxes; and • excise taxes on telephone services. • In addition, the 1990 Act (1) increased the top individual tax rate from 28% to 31% and the individual AMT rate from 21% to 24%, (2) capped the capital gains rate at 28%, and (3) phased-out personal exemptions above certain income thresholds. • The 1990 Act also affected payroll taxes by(1) raising the cap on taxable wages for Medicare from $53,400 to $125,000; (2) extending Social Security taxes to State and local employees; and (3) strengthened the unemployment insurance system by imposing a supplemental 0.2% unemployment insurance surtax. • The Act also created for the first time various incentives for clean and renewable energy investments as well as a tax credit for accommodations made for disabled persons.

Omnibus Budget Reconciliation Act of 1993, Public Law. 103-66 (August 10, 1993). The final deficit reduction act of the Rostenkowski Chairmanship came with the enactment of the 1993 Act which increased individual income tax rates and added two new brackets at the top of the earnings scale. The Act also increased the tax rates for the alternative minimum tax (AMT), while increasing the corporate tax rate to 35%. In addition, the gasoline tax was increased by 4.3 cents per gallon and the 2.5 cents per gallon motor fuels tax was extended. The 1993 Act also increased the earned income tax credit (EITC) and extended it to low-income single workers with no children.