1165 tax reform the taxpayer relief act of 1997 was

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¶1165 Tax Reform The Taxpayer Relief Act of 1997 was the most signi fi cant tax legislation since the Tax Reform Act of 1986. Major features of the Act include a reduction in capital gains tax rates, expanded IRAs, education tax incentives, estate tax relief, and a child tax credit. Underlying Rationale of the Federal Income Tax ¶1171 Objectives of the Tax Law The federal income tax system is comprised of a complicated and continually evolving blend of legislative provisions, administrative pronouncements, and judicial decisions. The primary purpose of the tax law is obviously to raise revenue, but social, political, and economic objectives are also important. These various objectives, which frequently work at cross-purposes with the revenue-raising objective of the law, must be examined and understood to appreciate the rationale underlying the immense multipurpose body of law known as the federal income tax. ¶1175 Economic Factors Numerous provisions of the tax law have been employed to help stimulate the economy, to encourage capital investment, or to direct resources to selected business activities. Examples include the following: MACRS depreciation; the optional expensing election in lieu of depreciation; percentage depletion; special farming elections to expense rather than to capitalize expenses for soil and water conservation, land clearing, and fertilizers; the S corporation provisions; the Section 1244 stock loss provision; and the tax rate structure for regular corporations. ¶1181 Social Factors Numerous tax provisions can best be explained in light of their underlying social objectives. Examples include the following: the tax-free status accorded to employees on premiums paid by an employer on group-term insurance, accident and health plans, and medical bene fi t plans; and the tax-deferred status accorded to employees’ current income under deferred compensation plans. ¶1185 Political Factors Since the tax law is created by Congress, and Congress consists of several hundred elected of fi cials, political factors play a major role in the development of tax legislation. Additionally, special interest groups and in fl uential constituents have a de fi nite impact on the legislative process. For example, depletion under the percentage depletion method is limited to 50% of “taxable net income before depletion” for all natural resource properties except oil and gas properties. For oil and gas properties, the limit is 100% of taxable net income before depletion. ¶1187 Tax Policy and Reform Measures Reform of the tax statutes has been a trend through the years. The tax policy implications of the 1986 revision will be under examination for some time to come. In an effort to further the concept of neutrality in the tax law, the Revenue Reconciliation Act of 1990 made major changes in the way high-income individuals compute their taxable income. Also, for 1991 the tax rate schedules were changed to incorporate a third tax bracket: 31 percent. The Revenue Reconciliation Act of 1993 extended the tax rates to also include a 36 percent bracket and a 39.6 bracket. The Taxpayer Relief Act of 1997 made major modi
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