| 1990 | November 5, 1990, President George H. W. Bush — the 31% bracket; PEP and Pease; luxury taxes |
| 1993 | August 10, 1993, President Bill Clinton — 36% and 39.6% brackets, retroactive to January 1; 85% of Social Security; Medicare cap removed; section 162(m) |
| Votes | 1990: House 228–200, Senate 54–45. 1993: House 218–216, Senate 51–50 with the Vice President breaking the tie |
| Still with us | The 85% tier at the same thresholds; Medicare tax on every dollar; the $1 million pay cap; 50% meals; 39-year buildings; qualified small business stock |
Why they happened
Both were deficit-reduction laws, and both were enacted by the narrowest of margins. The 1990 act came out of a budget summit between a Republican president and a Democratic Congress; signing it meant setting aside a campaign pledge of no new taxes, and the president said so. The 1993 act was the new Clinton administration’s deficit plan, concentrated on upper incomes and corporations, and passed without a single vote from the other party in either chamber.
1990
- A 31% top bracket replaced the 1986 “bubble,” and capital gains were capped at 28% — the first preferential rate for gains since 1986.
- PEP and Pease. Two hidden rate increases for incomes over roughly $100,000: the personal exemption phased out, and itemized deductions were reduced by 3% of income over the threshold. Both were set to expire in 1995, were made permanent in 1993, phased out in 2006–2010, restored in 2013, suspended in 2018, and finally dealt with in 2025 — the exemption is now permanently zero, and Pease was replaced by a narrower limit on taxpayers in the 37% bracket.
- The Medicare wage base raised from the Social Security cap to $125,000.
- Luxury taxes of 10% on cars over $30,000, boats over $100,000, aircraft, jewelry and furs. The boat tax devastated the boat-building industry and was repealed in 1993; the car tax expired in 2002.
- Gasoline, cigarette and alcohol taxes raised; the earned income credit expanded.
1993
- 36% and 39.6% brackets, above $140,000 and $250,000 on a joint return, retroactive to January 1, 1993 — taxpayers could pay the extra 1993 tax in three annual installments.
- Up to 85% of Social Security benefits taxable above $34,000 single or $44,000 joint, on top of the 1983 tiers. The thresholds have never been indexed. The extra revenue goes to Medicare.
- The Medicare wage cap removed. From 1994 the 2.9% tax applies to every dollar of wages and self-employment income. This is the rule behind every discussion of S corporation salaries since.
- Section 162(m): a publicly held company may deduct no more than $1 million a year of pay to its top executives.
- Corporate rate to 35% on income over $10 million; meals and entertainment cut from 80% to 50%; club dues made nondeductible; nonresidential buildings to 39 years; the moving-expense distance test raised to 50 miles.
- Qualified small business stock (section 1202): half the gain on stock in a small C corporation held five years excluded — the start of a provision that the 2025 law expanded to a 100% exclusion with a $15 million cap.
- A 4.3-cent gasoline tax; the earned income credit raised to 40% for two or more children with a new credit for workers without children; the 55% top estate rate restored.
What it meant
For most households the visible changes were at the pump and, for retirees with moderate other income, on the return: a larger share of Social Security became taxable, and because the thresholds were never indexed, more retirees cross them every year. A one-person business paying itself $150,000 paid Medicare tax on all of it from 1994 on. Higher earners got the first of the “hidden” rate increases — the phase-outs — that have been a fixture of tax law in one form or another ever since.