Economic Growth and Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 was a major piece of tax legislation passed by the 107th United States Congress and signed by President George W. Bush. It is also known by its abbreviation EGTRRA (often pronounced "egg-tra" or "egg-terra"), and is often referred to as one of the two "Bush tax cuts".
Long title
An act to provide for reconciliation pursuant to section 104 of the concurrent resolution on the budget for fiscal year 2002.
EGTRRA
Bush had made tax cuts the centerpiece of his campaign in the 2000 presidential election, and he introduced a major tax cut proposal shortly after taking office. Though a handful of Democrats supported the bill, most support came from congressional Republicans. The bill was passed by Congress in May 2001, and signed into law by Bush on June 7, 2001. Due to the narrow Republican majority in the United States Senate, EGTRRA was passed using the reconciliation process, which bypasses the Senate filibuster.
EGTRRA lowered federal income tax rates, reducing the top tax rate from 39.6 percent to 35 percent and reducing rates for several other tax brackets. The act also reduced capital gain taxes, raised pre-tax contribution limits for defined contribution plans and Individual Retirement Accounts, and reduced the estate tax. In 2003, Bush signed another bill, the Jobs and Growth Tax Relief Reconciliation Act of 2003, which contained further tax cuts and accelerated certain tax changes that were part of EGTRRA. Due to the rules concerning reconciliation, EGTRRA contained a sunset provision that would end the tax cuts in 2011, but most of the cuts were made permanent with the passage of the American Taxpayer Relief Act of 2012.
Legislative history[edit]
Bush's promise to cut taxes was the centerpiece of his 2000 presidential campaign, and upon taking office, he made tax cuts his first major legislative priority. A budget surplus had developed during the Bill Clinton administration, and with the Federal Reserve Chairman Alan Greenspan's support, Bush argued that the best use of the surplus was to lower taxes.[1] By the time Bush took office, reduced economic growth had led to less robust federal budgetary projections, but Bush maintained that tax cuts were necessary to boost economic growth.[2] After Treasury Secretary Paul O'Neill expressed concerns over the tax cut's size and the possibility of future deficits, Vice President Cheney took charge of writing the bill, which the administration proposed to Congress in March 2001.[1]
Bush initially sought a $1.6 trillion tax cut over a ten-year period, but ultimately settled for a $1.35 trillion tax cut.[3] The administration rejected the idea of "triggers" that would phase out the tax reductions should the government again run deficits. The Economic Growth and Tax Relief Reconciliation Act won the support of congressional Republicans and a minority of congressional Democrats, and Bush signed it into law in June 2001. The narrow Republican majority in the Senate necessitated the use of the reconciliation, which in turn necessitated that the tax cuts would phase out in 2011 barring further legislative action.[4]
Sunset provision[edit]
One of the most notable characteristics of EGTRRA is that its provisions were designed to sunset (or revert to the provisions that were in effect before it was passed) on January 1, 2011 (that is, for tax years, plan years, and limitation years that begin after December 31, 2010).[5] After a two-year extension by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the Bush era rates for taxpayers making less than $400,000 per year ($450,000 for married couples) were ultimately made permanent by the American Taxpayer Relief Act of 2012. The sunset provision allowed EGTRRA to sidestep the Byrd Rule, a Senate rule that amends the Congressional Budget Act to allow Senators to block a piece of legislation if it purports a significant increase in the federal deficit beyond ten years. The sunset allowed the bill to stay within the letter of the PAYGO law while removing nearly $700 billion from amounts that would have triggered PAYGO sequestration.[6]
Tax rebate[edit]
In addition to the tax cuts implemented by the EGTRRA, it initiated a series of rebates for all taxpayers that filed a tax return for 2000. The rebate was up to a maximum of $300 for single filers with no dependents, $500 for single parents, and $600 for married couples. Anybody who paid less than their maximum rebate amount in net taxes received that amount, meaning some people who did not pay any taxes did not receive rebates. The rebates were automatic for anybody who filed their 2000 tax return on time, or filed for an extension and quickly sent a return. If an eligible person did not receive a rebate check by December 2001, then they could apply for the rebate in their 2001 tax return.[7]
Impact[edit]
After the tax bill was passed, Senator Jim Jeffords left the Republican Party and began caucusing with the Democrats, giving them control of the Senate. After Republicans re-took control of the Senate during the 2002 mid-term elections, Bush proposed further tax cuts. With little support among Democrats, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003("JGTRRA"), which cut taxes by another $350 billion over 10 years. That law also lowered the capital gains tax and taxes on dividends. Collectively, the Bush tax cuts reduced federal individual tax rates to their lowest level since World War II, and government revenue as a share of gross domestic product declined from 20.9% in 2000 to 16.3% in 2004.[4]
A 2012 Congressional Budget Office analysis found that the tax cut reduced federal tax receipts by $1.2 trillion over ten years.[8]