The Taxpayer Relief Act of 1997 (Pub. L. 105–34, H.R. 2014, 111 Stat. 787) was enacted by the 105th United States Congress and signed into law by President Bill Clinton on August 5, 1997. This legislation reduced federal taxes and introduced the Roth IRA.
Provisions
- Roth IRA and Retirement Accounts: The Act established the Roth IRA, which provides a permanent tax exemption for these retirement accounts from capital gains taxes. The Roth IRA was proposed by Senators William Roth and Bob Packwood in 1989 and was included in the 1997 legislation.
- Education Savings: The Act introduced tax exemptions for education expenses through the Hope Credit and the Lifetime Learning Credit. It also extended some expiring business tax provisions.
- Child Tax Credit: Beginning in 1998, the Act introduced a $400 tax credit for each child under age 17, which increased to $500 in 1999. This credit was phased out for high-income families.
- Capital Gains Tax: The top long-term capital gains tax rate was reduced from 28% to 20%, with the 15% bracket lowered to 10%. Additionally, capital gains from the sale of a personal residence were permanently exempted from taxes up to $500,000 for married couples and $250,000 for singles, provided the residence was lived in for at least two of the past five years. Taxpayers can claim this exemption only once every two years.
- Estate Tax: The estate tax exemption increased gradually from $600,000 to $1 million by 2006. Inherited assets were revalued to their current market value, making any capital gains on those assets permanently exempt from tax.
- Family Farms and Small Businesses: The Act provided a $1.3 million exemption for family farms and small businesses starting in 1998. The $10,000 annual gift tax exclusion was also adjusted for inflation beginning in 1999.
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Legislative History
This was the first law focused solely on tax cuts enacted using the fast-track budget reconciliation process. The final votes on the bill were:
- House of Representatives:
- Republicans: 225 yea, 1 nay
- Democrats: 164 yea, 41 nay
- Independents: 0 yea, 1 nay
- Total: 389 yea, 43 nay
- Senate:
- Republicans: 55 yea, 0 nay
- Democrats: 37 yea, 8 nay
- Total: 92 yea, 8 nay
The bill was signed into law by President Bill Clinton on August 5, 1997, along with the Balanced Budget Act of 1997.
Conclusion
The Taxpayer Relief Act of 1997 was a significant piece of legislation that aimed to reduce tax burdens and provide relief to individuals and businesses. Its introduction of the Roth IRA and various tax credits and exemptions marked notable changes in U.S. tax policy.