President Ronald Reagan signs the bill at his California ranch in 1981

The Economic Recovery Tax Act of 1981 (also known as ERTA or the Kemp-Roth Tax Cut) was "A bill to amend the Internal Revenue Code of 1954 to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings, and for other purpose." Pub.L. 97-34, 95 Stat. 172, enacted 1981-08-13) It also reduced marginal income tax rates in the United States by 25% over three years (the top rate falling from 70% to 50% while the bottom rate dropped to 14% to 11%) and indexed the rates for inflation, though the indexing was delayed until 1985. Its sponsors, Representative Jack Kemp and Senator William Roth, had hoped for more significant tax cuts, but settled on this bill after a great debate in Congress. It passed Congress on August 4, 1981 and was signed into law on August 13, 1981 by President Ronald Reagan at his California ranch.

Critics blame the tax cuts for the deficits in the budget of the United States government in the 1980s and early 1990s. Supporters credit them with helping the 1980s economic expansion. Supporters of the tax cuts also argue, using the Laffer curve, that the tax cuts increased government revenue. This is hotly disputed--critics contend that, although government income tax receipts did rise, it was due to economic growth not caused by the tax cuts, and would have risen more if the tax cuts had not occurred. Supporters see the growth as caused by the tax cuts. Controversy still remains as to whether the tax cuts of 1981 increased revenues.

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