Taxpayer Relief Act of 1997
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| Long title | An act to provide for reconciliation pursuant to subsections (b)(2) and (d) of section 105 of the concurrent resolution on the budget for fiscal year 1998. |
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| Enacted by | the 105th United States Congress |
| Effective | January 1, 1998 |
| Citations | |
| Public law | Pub. L. 105–34 (text) (PDF) |
| Legislative history | |
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| This article is part of a series on |
| Taxation in the United States |
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The Taxpayer Relief Act of 1997 (Pub. L. 105–34 (text) (PDF), H.R. 2014, 111 Stat. 787, enacted August 5, 1997) was enacted by the 105th United States Congress and signed into law by President Bill Clinton. The legislation reduced several federal taxes in the United States and notably created the Roth IRA.[1]
Provisions
[edit]Roth IRA and other individual retirement accounts
[edit]The legislation is notable for having established the Roth IRA, creating a permanent exemption for these retirement accounts from capital gains taxes. The Roth IRA was initially proposed by Senators William Roth of Delaware and Bob Packwood of Oregon 1989,[2] and Roth pushed for the creation of the IRAs in the 1997 legislation.[3]
The act also provided tax exemptions for retirement accounts as well as education savings in the Hope credit and Lifetime Learning Credit. Some expiring business tax provisions were extended.
Other provisions
[edit]Starting in 1998, a $400 tax credit for each child under age 17 was introduced, which was later increased to $500 in 1999. This credit was phased out for high-income families.
The top marginal long term capital gains rate fell from 28% to 20%, subject to certain phase-in rules. The 15% bracket was lowered to 10%.
The act permanently exempted from taxation the capital gains on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. This exemption applies to residences the taxpayer(s) lived in for at least two years over the last five. Taxpayers can only claim the exemption once every two years.[4]
The $600,000 estate tax exemption was to increase gradually to $1 million by the year 2006. As inherited assets are automatically revalued to their current or "stepped-up" basis, any capital gains are permanently exempted from taxation.
Family farms and small businesses could qualify for an exemption of $1.3 million, effective 1998. Starting in 1999, the $10,000 annual gift tax exclusion was to be corrected for inflation.
Legislative history
[edit]This was the first law devoted solely to tax cuts that Congress enacted using the fast-track budget reconciliation process.
Votes on the final version of the bill following reconciliation were as follows.
House of Representatives
| Vote by Party | Yea | Nay | ||
|---|---|---|---|---|
| Republicans | 225 | 99.6% | 1 | 0.4% |
| Democrats | 164 | 80.0% | 41 | 20.0% |
| Independents | 0 | 0.0% | 1 | 100% |
| Total | 389 | 90.0% | 43 | 10.0% |
| Not voting | 2 | 1 | ||
Senate
| Vote by Party | Yea | Nay | ||
|---|---|---|---|---|
| Republicans | 55 | 100% | 0 | 0.0% |
| Democrats | 37 | 82.2% | 8 | 17.8% |
| Total | 92 | 92.0% | 8 | 8.0% |
The bill was signed into law by President Bill Clinton on August 5, 1997, along with the Balanced Budget Act of 1997.
References
[edit]- ^ VanderVeen, Kiel. "Roth Conversions: Right For Everyone? Think Again". Forbes. Retrieved December 26, 2023.
- ^ Blustein, Paul (October 21, 1989). "Critics Call New IRA Plan a Budget Gimmick: Backers See Proposal as Idel Way to Spur Savings, Cut Deficit". The Washington Post. p. D12. ProQuest 139926770.
- ^ "What Senator William Roth Envisioned For The Roth IRA". rothira.com. August 30, 2011. Retrieved September 2, 2016.
- ^ U.S. Law. "26 USC § 121". Cornell Legal Information Institute. Retrieved April 1, 2013.
External links
[edit]- Pub. L. 105–34 (text) (PDF), Taxpayer Relief Act of 1997
- Pub.L. 105-34, Taxpayer Relief Act of 1997 (readable online)
- H.R. 2014, Taxpayer Relief Act of 1997
- 105th Congress / House / 1st session / Vote 350 final vote results on H R 2014: Revenue Reconciliation Act of 1997, by various groups and by individuals, from the Washington Post
- Mark Bautz, How a Capital-Gains Cut Will Change the Way You Invest CNN Money, August 1, 1997