Taxpayer Relief Act of 1997
What it is:
The Taxpayer Relief Act was created in 1997 and signed by President Bill Clinton. It represented a major overhaul of the U.S. tax system and introduced dozens of new tax credits, benefits and brackets.
How it works (Example):
Some of the more notable aspects of the Taxpayer Relief Act include the introduction of the child tax credit, which reduced the tax burdens on families. It also established the Hope and Lifetime Learning credits for continuing education, and made interest on student loans tax-deductible. The Taxpayer Relief Act also included a provision for penalty-free withdrawals from retirement plans for higher education expenses.
One of the Act's most famous components was its Welfare-to-Work and Work Opportunity Tax credits, which provided tax credits for businesses employing long-term family assistance recipients.
The Act also established Roth Individual Retirement Accounts (Roth IRAs), which allow investors to contribute after-tax money into an account and then withdraw that money and its earnings tax-free during retirement.
Some investing-specific provisions of the Taxpayer Relief Act include the setting of a minimum 20% capital gains tax, the creation or raising of several exemptions to the alternative minimum tax (AMT) and permission for taxpayers to exclude a certain amount of capital gains related to the sale of a home.
Why it Matters:
The Taxpayer Relief Act of 1997 was one President Clinton's most prominent legislative legacies. The Act included hundreds of changes to the tax code and to tax policy -- it even modified the tax treatment of hard cider! Many of the Act's provisions remain in place, though many have since been amended.