Economic Growth and Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 is a significant piece of legislation that was signed into law by President George W. Bush, aimed at providing tax relief in the context of record federal budget surpluses during the late 1990s. The Act arose from a political debate over taxation levels, particularly following the fiscal policies of the Clinton administration, which had led to these surpluses. Bush and his supporters argued that the surpluses indicated an overtaxing of Americans and sought to redistribute those funds through various tax cuts.
The Act introduced several key changes, including reductions in income tax rates, an increase in tax credits for child care and education, and adjustments to the estate tax. Notably, it established a sunset provision that specified the tax changes would expire after ten years, raising concerns about long-term fiscal implications. The legislation was initially framed in response to a strong economy but later faced scrutiny as it contributed to significant government deficits during the subsequent recession that began in 2008. The expiration of these tax cuts became a contentious issue in later political debates, influencing subsequent tax policy decisions, including those made by President Barack Obama.
Economic Growth and Tax Relief Reconciliation Act of 2001
The Law: Federal law providing a range of temporary tax breaks to the American people
Date: June 7, 2001
Also Known As: EGTRRA, Bush tax cuts
On June 7, 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 into law. The federal government had been running record budget surpluses in the late 1990s. Many in the US government felt that these surpluses resulted from excessive taxation, and they wanted a vehicle to provide compensatory tax breaks to the American population.
In the final years of Bill Clinton’s presidency, the US federal budget ran major surpluses, the first since 1969. The surpluses were due to several factors. These were years of robust economic growth, so corporations and individuals were paying more in taxes due to higher earnings. This combined with the effects of the Omnibus Reconciliation Act of 1993, which modestly increased corporate taxes and income tax, particularly for wealthier citizens.
The Clinton-era surpluses were contested in the 2000 presidential election. Democratic candidate Al Gore sought to use the surpluses to protect the Social Security system, which faced long-term shortfalls. Republican candidate George W. Bush argued that the surpluses resulted from excessive taxation. He wanted to give the money back to the people who had apparently paid too much in taxes.
Once elected, Bush made this form of tax relief a priority. Along with most Republicans, he sought to focus the tax cuts on the wealthier Americans impacted by the Clinton-era tax increases. However, Democratic politicians pressured Republicans to include tax breaks for other income levels.
The resulting legislation contained many changes. It created a 10 percent rate to replace the 15 percent rate and provided that the difference in tax liability for 2000 be refunded by check to taxpayers in 2001. It gradually lowered the 28 to 36 percent brackets by three percentage points and the highest tax bracket from 39.6 to 35 percent.
Among other things, the bill increased tax credits for dependent care, children, employer-provided child care, and adoption. It increased deductions for certain educational expenses and retirement contributions. It also increased the standard deduction for joint returns, eliminating the so-called marriage penalty. Further, it increased exemptions from estate and gift taxes. Importantly, the legislation included a sunset provision stipulating that the changes to tax law would cease on January 1, 2011.
Impact
The Economic Growth and Tax Relief Reconciliation Act of 2001 became law during a time of strong economic growth, but it is estimated to have cost the government approximately $1.4 trillion during the recession that began in 2008. This was a factor in creating record federal deficits. Nonetheless, its expiration has proven highly controversial, and President Barack Obama renewed the Bush tax cuts for two years in 2010.
Bibliography
Bancroft Library. “2001 Economic Growth and Tax Relief Reconciliation Act.” Slaying the Dragon of Debt. University of California, Berkeley, 7 Mar. 2011. Web. 14 Dec. 2012.
Manz, William H. Legislative History of the Economic Growth and Tax Relief Reconciliation Act of 2001. Buffalo: Hein, 2002. Print.
“Summary of Provisions Contained in the Conference Agreement for H.R. 1836, The Economic Growth and Reconciliation Act of 2001.” Joint Committee on Taxation. United States Government, 26 May 2001. Web. 14 Dec. 2012.