The 36% and 39.6% rates were enacted in the Omnibus Budget Reconciliation Act of 1993, enacted by the 103rd US Congress and signed into law by President Bill Clinton. It has also been referred to as the Deficit Reduction Act of 1993. Part XIII, which dealt with taxes is called the Revenue Reconciliation Act of 1993. It also raised the corporate top tax rate to 35%.
The Omnibus Budget Reconciliation Act of 1990 (ORBA-90) raised the top personal income tax rate from 28% to 31% thereby violating President George H.W. Bush’s “No gnu taxes.” pledge. The tax cap on Medicare taxes was also raised from $53,400 to $125,000. It was signed into law by President G.H.W. Bush on Nov. 5, 1990.
President Clinton commented in 1996 that the 1993 tax increase may have gone too far in that it actually decreased revenues to the government. As a result he signed the Taxpayer Relief Act of 1997 into law on August 5, 1997, reducing the long term capital gains rate to 20% from the 28% initially set in TRA ’86, and lowering the 15% bracket to 10%. That was also the act which exempted from taxation profits on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. It raised the $600,000 estate tax exemption gradually to $1,000,000 by 2006, among other things.
The TRA ’97 act was the one authored by the new Republican majority in the House, led by Newt Gingrich. It received at the time, full and wholehearted support from Republicans and was hailed as a “reasonable, responsible” level of taxation by Gingrich. It produced a marked and relatively dramatic increase in federal revenue and was credited for at least part of the market run-up and economic boom of the late 1990s. It also contributed rather dramatically to the housing bubble as the requirement to reside in a second or vacation house was only two weeks per year in order to realize the gain on a tax-free basis upon selling the house.
The Taxpayer Relief Act of 1997 is what we will revert to on January 1st if Congress does nothing. Given the wholehearted support it got across the board in 1997 and its effects in balancing the budget, I think you may be able to see why I am scratching my head at the intense opposition a return to that law is receiving now.