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Definition: TEFRA

Tax Equity And Fiscal Responsibility Act Of 1982 - TEFRA. An act named Kemp-Roth Act was passed in the US in 1981. This act was formed to change the Internal Revenue Code of 1954 so as to encourage economic growth through reductions in individual income tax rates, the expenses of depreciable property, incentives on small enterprises, and incentives for savings too.

As a result of an ongoing recession in some period, the government faced a short-term fall in tax revenue generated which further formed a budget deficit. Due to these circumstances an act called "The Tax Equity and Fiscal Responsibility Act of 1982 also known as TEFRA was introduced. It is a US federal law that cancelled some of the effects of the Kemp-Roth Act passed a year before. TEFRA was actually created in order to reduce the budget gap by generating revenue through solution of tax loopholes and introduction of tougher implementation of tax rules, as opposed to changing marginal income tax rates. TEFRA was introduced on November 13, 1981. After much deliberation over it, the final version was signed by President Ronald Reagan on the 3rd of September, 1982.

The Office of Tax Analysis of the United States Department of the Treasury summarized the tax changes in the following points:

• repealed planned increments in quickened deterioration conclusions

• tightened safe harbor renting principles

• required citizens to diminish premise by 50% of speculation duty credit

• instituted 10% withholding on profits and interest paid to people

• tightened finished contract bookkeeping guidelines

• increased FUTA pay base



• Lower budget deficit as tax collection increased



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