TAX POLICY AND CAPITAL FORMATION: THE ECONOMIC RECOVERY TAX ACT OF 1981

The Reagan Revolution is presented as a consequence of the economic crisis of the mid-Seventies. The centerpiece of that revolution was the Economic Recovery Tax Act of 1981. The Reagan tax bill is analyzed as a capital formation strategy designed to rid capital of its tax burden and to scale back government programs that redistribute the nation's wealth.; The falling rate of profits during the Seventies demanded a political response from business leaders. The response came in the form of unprecedented organization and mobilization of the business sector made possible by the lack of challenge from the Democratic party. Business formulated a strategy to restore profits through government fiscal policies. The Reagan tax bill was the culmination of that strategy.; This work is a case study of the Economic Recovery Tax Act of 1981. This bill was a supply-side initiative to promote growth by redirecting distributional outcomes toward the corporate sector and the wealthy while imposing costs on the haves less in American society. The tax cuts under ERTA also demanded spending cuts and the scaling back of government programs that were consistent with supply-side objectives. This study looks at winners and losers from Reagan's tax strategy with emphasis on business' role in defining distributional outcomes.