Economic Growth Tax Relief Reconciliation Act (EGTRRA)
The Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) was signed into law by President George W. Bush to reform tax rates. EGTRRA is a US tax law that significantly altered retirement plan rules and various tax rates. The Act was initially introduced for 10 years but later on it was extended. Today, it is also known as Bush tax rates.
A Little More on What is the EGTRRA
The EGTRRA is a US tax reform act that reformed the tax structure in the United States. It lowered income tax brackets for individuals, set new tax limits for estate and gift taxes, and created new employee retirement plans. It allowed individuals 50 years old and older to increase contributions in their defined-contribution retirement plans. The EGTRRA also revised life expectancy rates for determining defined benefit retirement plan funding.
The EGTRRA opened the door for more retirement plans, including the Sidecar IRA and Roth 401 (k). The Sidecar IRA is an employer-sponsored retirement plan. The Roth 401 (k) was introduced for certain public employees and employees of non-government organization. The Roth 401 (k) has similar benefits to a Roth IRA but it is set up on the structure of employer- sponsored plan.
The EGTRRA allows administrators of retirement plan to transfer cash out of a 401(k) to an IRA. It also allows shareholders of S-Corporations to borrow funds from their personal pension plans.
The EGTRRA is criticized for its effect on the budget deficit. The US government spending budget has been larger than tax revenue since that time. In 2018 more taxes were cut under a law signed by President Donald Trump, creating a $1 trillion dollar budget deficit. The Congressional Budget Office estimates a total US debt of $21 trillion by the end of 2018.
References for the Economic Growth Tax Relief Reconciliation Act of 2001
Academic Research on Economic Growth Tax Relief Reconciliation Act (EGTRRA)
An economic evaluation of the economic growth and tax relief reconciliation act of 2001, Gale, W. G., & Potter, S. R. (2002). National Tax Journal, 55(1), 133-186. President George W. Bush signed the Economic Growth Tax Relief Reconciliation Act (EGTRRA, PL 107-16) in June 2001. EGTRRA renounces the estate tax, lessens the rate of income tax, modifies the taxation of education, marriage, children etc and repeals all its provisions in 2010. This article gives an introductory evaluation of the new law, a summary of its provisions and the tax cut relative to the federal budget.
The economic growth and tax relief reconciliation act of 2001: Overview and assessment of effects on taxpayers, Kiefer, D., Carroll, R., Holtzblatt, J., Lerman, A., McCubbin, J., Richardson, D., & Tempalski, J. (2002). National Tax Journal, 55(1), 89-117. Congress enacted the Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) in May 2001. EGTRRA is different from existing tax legislation in several main aspects. The Act’s tax cut directly benefits individuals, not companies, its provisions last longer than recent bills and leads to the reduction of marginal taxes. The Act “sunsets” and reverts to previous law on January 1, 2011. This article discusses the main provisions and the assesses the effects of EGTRRA on taxpayers.
The 2001 and 2003 tax rate reductions: An overview and estimate of the taxable income response, Auten, G., Carroll, R., & Gee, G. (2008). National Tax Journal, 345-364. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) embodies the key ideas of President Bush’s tax proposals which were to lower rates of marginal tax to increase the economic incentives to work and invest. This article evaluates the impact of reduced marginal tax rates by assessing the reaction of reported taxable income to lower taxes.
Policy watch: The expanding reach of the individual alternative minimum tax, Burman, L. E., Gale, W. G., & Rohaly, J. (2003). Journal of Economic Perspectives, 17(2), 173-186. To reduce excessive tax sheltering by individuals, the Alternative Minimum Tax was created in 1970. With the new tax law, AMT will expand to reach millions of households in the next ten years. The expansion occurs because the AMT is not affected by inflation and the 2001 tax cut. This article fully describes the AMT, discusses the economic problems related to the AMT and evaluates options for reform.
Highlights of the 2003 Jobs and Growth Tax Relief Reconciliation Act: Economic Stimulus or Long-Term Disaster, Kalinka, S. (2003). La. L. Rev., 64, 219. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) was signed by President Bush on May 28, 2003. The Act represented one of the biggest tax cuts in the history of the United States. This paper sheds light on some of the key provisions of JGTRRA and finds fault in the fiscal irresponsibility and complexity of the Act.
The Effect of the 2001 Tax Cut on Low-and Middle-Income Families and Children, Burman, L. E. (2002). The 2001 tax cut has been highly criticized for benefiting mostly the rich, which is not so. The Act also assists the low-and-middle-income families by increasing the child tax credit and increasing its standard deduction from married couples which is then refundable to poor families. At all income levels, families with children do better than those without.
The elasticity of taxable income: influences on economic efficiency and tax revenues, and implications for tax policy, Giertz, S. H. (2009) Economics Department Faculty Publications, 64. This paper focuses on key advancements in ETI research over the past decade and connects them to important tax problems the United States will face in the next few years. The paper also discusses the two major Bush tax laws, the Economic Growth Tax Relief and Reconciliation Act of 2001 (EGTRRA) and the Jobs Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA), which are designed to expire immediately after 2010.
The alternative minimum tax and effective marginal tax rates, Feenberg, D., & Poterba, J. (2003). (No. w10072). National Bureau of Economic Research. This article observes how the Alternative Minimum Tax (AMT) influence the average marginal tax rates. It also discusses how various AMT reform proposals would affect the average marginal taxes, the number of AMT taxpayers and total AMT liability. The authors concluded that AMT has a modest impact on the weighted average marginal taxes.
The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns, Heim, B. T. (2009). Journal of Policy Analysis and Management: The Journal of the Association for Public Policy Analysis and Management, 28(1), 147-163. Using random samples of taxpayers from 1999-2005, the elasticity of taxable income to the net-of-tax share was estimated in this article. The period of sampling was able to cover the EGTRRA 2001 and JGTRRA 2003 tax changes. Using the results as evidence, the author discussed the impact of tax changes on taxable income elasticity.
Marginal Tax Rate Cuts and the Public Tax Debate, Calomiris, C. W., & Hassett, K. A. (2002) National Tax Journal, 55(1), 119-131. In May 2001, President Bush’s proposal on the reduction of income tax became law. It was called the Economic Growth Tax Relief Reconciliation Act (EGTRRA) of 2001. There was a public tax debate to discuss the economic effect of EGTRRA. This article delves into the details of the arguments that were most decisive during the debate and were neglected by the tax economists.
The estate tax: Ninety years and counting, Jacobson, D. B., Raub, B. G., & Johnson, B. W. (2007). SOI Bulletin, 27(1), 118-128. At several major moments in the last 90 years of American history, the Federal Government has depended on estate and inheritance taxes as a source of funds. This article provides a short history of the estate tax and its effect on the U.S. budget. It also examines changes in the economic behavior of the affected population over time in response to technological, market and political stimuli.
The Economic Growth and Tax Relief Reconciliation Act of 2001 and Private Pension System Reform, Zhang, Y. (2002). U. Pa. J. Lab. & Emp. L., 5, 629. There are three major sources of income after retirement for Americans: social security, personal savings and investments, and employment-based pension plans. A new era of pension reform started with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The aim of this article is to compare EGTRRA’s pension reform with existing private pension system reforms and provide further improvements to the Act.