Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

What it is:

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) became law on September 3, 1982. The TEFRA made it more difficult for individuals and corporations to reduce their tax liability.

How it works (Example):

Representative Pete Stark (D-CA) introduced the bill, which had 12 co-sponsors, on November 13, 1981. TEFRA had four major objectives: improve tax compliance and collection, close certain tax loopholes, increase certain excise taxes and increase certain employment taxes.

More important to investors, TEFRA created a 10% withholding tax for dividends (which was then repealed by the Interest and Dividend Tax Compliance Act of 1983). TEFRA also removed some accelerated depreciation deductions for corporations, although the basic shortening of asset tax lives was left intact (which still favored companies from a tax perspective).

Why it Matters:

TEFRA raised taxes in an effort to repeal the Economic Recovery Tax Act of 1981.

During the Reagan administration, the rationale for a tax increase was to make tax evaders pay rather than raise taxes on everyone at a time when worries over the budget deficit were high. The tax increase was approximately 0.8% of GDP, or $37.5 billion per year. This created a controversy about whether TEFRA was one of the country's largest tax increases.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...