The 1997 Taxpayer Relief Act

1997 Taxpayer Relief Act

The passage of the 1997 Taxpayer Relief Act brought additional changes to the United States Tax Code, ultimately resulting in a tax cut for many Americans.

However, the piece of this new legislation that received the most positive and negative attention was the Child Tax Credit.

While previous tax code included various tax credits, this particular tax credit was very different than any other and set a precedent for future tax policy at the Federal level.

This was because the Child Tax Credit actually allowed for a refund for low income families who owed less in taxes than the value of credit – for each child in their family. Yes, you are reading this correctly; this meant that for “many families,” instead having to pay taxes as citizens of the United States, they would actually receive checks (income) from the Federal Government instead.

Prior to 1997, most tax relief was provided either new tax deductions or increased tax exemptions, or just plain lower tax rates. Those opposed to such policy referred to the 1997 Taxpayer Relief Act as the government’s newest camouflaged spending program, operating under the guise of the Federal tax system.

Taxpayer Relief Act of 1997

After the ’93 tax increase, additional changes that affected the taxes individuals would pay altered the fairly equal balance of taxes based on income and consumption more toward the consumption tax.

The idea behind these changes was to encourage saving for specific reasons. As examples, there were Educational (IRA and 529) Savings Programs, Medical Savings Accounts launched, with various tax incentives to help folks pay for future medical and education expenses.

Another plan also born at this time allowed after tax contributions with tax free distributions and it was called The Roth IRA.

The Tax Relief Act Of 1997
As such, the U.S. economy in the 1990s was very strong in spite of higher tax rates.

This was due to additional economic factors such as the U.S. Tech Boom, helped by low interest rates and inflation, combined with the Soviet Union falling apart.

All of these factors contributed to Federal taxes as a percentage of Gross Domestic Product getting to 20.8% in the year 2000. This was an astonishing increase in the total tax burden for the U.S..

Source: U.S. Department of Treasury

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