| ERISA | September 2, 1974, President Gerald Ford — the IRA |
| Tax Reform Act of 1976 | October 4, 1976, President Ford — unified estate and gift tax; carryover basis (never took effect) |
| Revenue Act of 1978 | November 6, 1978, President Jimmy Carter — section 401(k); capital gains exclusion to 60%; cafeteria plans |
| Still with us | The IRA, the 401(k), section 125 plans, the unified estate and gift tax, the stepped-up basis at death, the at-risk rules |
1974: the IRA
The Employee Retirement Income Security Act was a pension law, not a tax law. It was written after the 1963 closing of the Studebaker plant in South Bend left thousands of workers with little or none of the pension they had been promised, and it set the vesting, funding and fiduciary rules that still govern private pensions, backed by a new federal insurer. Almost as an afterthought it created the Individual Retirement Account: a worker with no company pension could put aside up to $1,500 a year, deduct it, and let it grow untaxed until retirement. The limit is $7,000 today, plus $1,000 after age 50, and the eligibility rules have been changed twice since.
1976: the one that almost changed inheritance
The Tax Reform Act of 1976 merged the separate estate and gift taxes into a single system with one lifetime exemption — the structure still in use. It strengthened the minimum tax (the number of people paying it went from about 20,000 to 247,000 in a year), lengthened the holding period for long-term capital gains from six months to a year, and added the at-risk rules that ended the four-dollars-of-loss-for-one-dollar-invested cattle and movie partnerships.
Its most consequential provision never took effect. The law replaced the stepped-up basis at death with carryover basis: heirs would inherit the decedent’s original cost, and the family farm or the stock bought in 1950 would carry its whole lifetime of gain into the next generation. The outcry from executors and small-business families was such that Congress postponed it in 1978 and repealed it, retroactively, in 1980. The stepped-up basis survives, and remains the single most valuable rule in the code for passing property to the next generation.
1978: the 401(k)
The Revenue Act of 1978 was a political reversal. President Carter had proposed closing loopholes; after California’s Proposition 13 that summer, Congress instead cut the capital gains tax, raising the excluded share of a long-term gain from 50% to 60% so the top effective rate fell to 28%. It also raised the personal exemption to $1,000, made the earned income credit permanent, and gave statutory footing to cafeteria plans — the basis of today’s flexible spending accounts.
Buried in section 135 was a new paragraph (k) added to section 401, allowing an employee to have part of his pay set aside in a retirement plan before tax. Nobody noticed. A benefits consultant named Ted Benna read it in 1980 and realized it could replace the company pension; the IRS wrote regulations in late 1981, and the first large plans opened in January 1982. Fifty years on, the 401(k) holds more retirement money than any other kind of account.
The same act contained section 530 — the safe harbor that protects a business which has treated its workers as independent contractors in good faith — which is still the law and still uncodified.
What it meant
A worker in 1975 without a company pension could, for the first time, save for retirement with pre-tax money. A worker in 1982 could do it through payroll. Heirs kept the stepped-up basis. And a decade that produced no single famous tax reform produced three of the most-used provisions in the code.