Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) is a law that was passed early in the first term of President George W. Bush as part of his plan to provide tax relief to people in most income brackets.
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History
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EGTRRA was an amendment to the Internal Revenue Code that was signed into law on June 7, 2001. The bill had 291 pages, saw 85 major changes, and included 441 revises sections of the existing Code. Though U.S. tax law changes frequently, the changes in this act were unusually broad.
Function
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The new tax provisions were intended to act as an economic stimulus by reducing taxes and providing tax refunds. According to Fun with Taxes, the Act were expected to reduce federal income by $1.35 trillion between 2001 and 2011, but the Bush administration thought a federal budget surplus projected in 2001 would cover the drop in federal revenue over the following 10 years.
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Time Frame
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The provisions of EGTRRA were scheduled to be phased in during a nine-year period from 2001 to 2011, with specific changes implemented at different rates. For example, changes in tax rates were to be phased in over five years from 2001 to 2006, while adjustments in disparity between married and single taxpayers were to be phased in during a four-year period from 2005 to 2009. The timing of the phase-in was changed by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), which accelerated some of the changes.
Effects
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The EGTRRA lowered tax rates for the first $6000 earned by each taxpayer retroactive to January 1, 2001, so that taxpayers were eligible for tax rebates. It also lowered tax rates, ended the disparity between the rates paid by married and single taxpayers, and phased out itemized deductions. Both child tax credits and dependent care credits were increased. People were allowed to make larger contributions to retirement plans, both IRAs and employer-sponsored plans, and those who contributed to retirement plans were eligible for tax credits. The amounts exempt from federal estate taxes were increased and estate taxes were repealed as of 2010, though Congress can reinstate them.
Considerations
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EGTRRA is only a temporary law and will sunset, or revert to the provisions of the Internal Revenue Code that existed in June 2001, on January 1, 2011 unless Congress enacts legislation to prevent the reversion. Also, though the federal estate tax is due to be repealed in 2010, provisions about the value of property for purposes of capital gains tax will also change, so that heirs will still have to pay taxes on assets like real property and stocks.
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