June 6, 2001

June 6, 2001 | WebMemo on Taxes

Tax Relief by State for the Four Major Tax Provisions in theEconomic Growth and Tax Relief Reconcilation Act of 2001

What is Needed
Final Bill
Amount of Tax Relief (in billions from 2001 to 2011)
Sunset Provisions Make all of the tax changes permanent. Nearly every tax policy change in the legislation sunsets or ends in FY2011, including rate reductions and death taxrepeal.
While Congress bowed to budget rules, sunsetting the key provisions is terrible tax policy.
Marginal Rate Reductions Replace today's punitive graduatedrate structure with one low rate.

Tax rates reduced:

  1. New tax rate of 10% produces a tax "credit" for 2001 and a refund check for all taxpayers.
  2. Top rate falls from 39.6 to 35% by 2006 with restoration of exemptions and item. deductions.
  3. By 2006 the new tax rates are 10, 15, 25, 28, 33, and 35 (current rates are 15, 28, 31, 35, and 39.6 without ex. & ded).
The rate cuts will provide much needed tax relief & will support stronger economic growth. However Congress should have lowered the top marginal tax rate to 33 percent as the a first step toward a flat tax.
Child Tax Credit Eliminate refundability.

Expands the credit slowly to $1,000

  1. Credit grows to $600 next year
  2. Gradually increases to $1,000 by 2010
  3. Expands welfare by making credit refundable.
The expanded credit will provide tax relief to families although it does not enhance the economy's performance or simplify the tax code. Increases the redistribution of income.
Marriage Penalty Relief Eliminate tax liability differences between single and married taxpayers by making the standard deduction and the tax brackets for joint taxpayers twice that of single taxpayers.

Achieve marriage penalty relief by

  1. Setting the standard deduction for joint taxpayers to twice that of single taxpayers by 2010.
  2. Setting the 15% tax bracket for joint taxpayers to twice that of single taxpayers by 2010.
  3. Modify EIC rules to eliminate marriage penalties for low-income taxpayers.
Congress has taken an important first step toward eliminating a major bias in the tax code but it needs to revisit its work and speed up the implimentation of these tax equity provisions.
Education Provisions Expand amount and eligibility for Education IRAs; permit private educational institutions to offer pre-paid tuition plan. Expand Education IRAs contributions
Permit private pre-paid plans
Other provisions
IRAs and pre-paid plans improve tax law by reducingthe multiple layers of taxes on current income.
Death Taxes Repeal estate, gift, and generation-skipping taxes immediately. Phase-out estate and GST tax rates with repeal in 2010; retain gift taxat top individual income tax rate. Immediately expand the exemptionamount to $1 million; $3.5 million in 2009.
There was progress toward repeal in HR 1836, but the sunset provision in 2011 and retention of the gift tax means that Congress has more work to do on death taxes.
Pension and IRA Provisions Expand tax-neutral savings opportunities; reform inequities in pension law. Utimately provide universial IRA treatment for all savings to eliminate bias in the tax code. Increase annual IRA contribution level from $2,000 to $5000 by 2008.
Increase annual 401/403 plan amountsfrom $10,000 to $15,000 by 2006.
Reform pension and deferred taxation law to enhance fairness to women aged 50 and above.
Other provisions.
Expanding IRAs and availabilityof private pension plans improves tax law by reducing taxes on savingsand strengthens the economy by increasing the level of private retirement savings.
AMT Relief Move towards fundamental tax reform resulting in a flat tax to solve all AMT problems. AMT should be repealed. Five-year increase in the AMT exemption amount.
Note: by 2010 the number of AMTtaxpayers will jump from 17.5 million to 35.5 million upon enactment of above provisions.
The AMT will snare an increasing number of taxpayers, but not as many as would have been snared without the bill.
Source: Joint Committee on Taxation, Summary of Provisions Contained in the Conference Agreement for H.R. 1836, the Economic Growth and Tax Relief Reconciliation Act of 2001, JCX-50-01 (May 26, 2001).

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