Expiration and Extension of the Individual Income Tax Cuts First Enacted in 2001 and2003

Maxim Shvedov
Analyst in Public Finance

This report discusses some of the broad individual income tax cuts effective for most of the last decade that are set to expire at the end of 2010. These tax cuts were first enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27) and later extended by other acts. The report traces the legislative history of the tax cuts, shows their time line, and provides a general overview of their economic implications and revenue effects. 

Congress faces the issue of whether to let the tax cuts expire or extend them, and if so, how. The tax cuts were first enacted under reconciliation rules. As a result, all of the provisions were scheduled to sunset (revert to prior law levels) at the end of 2010 or earlier. Subsequent legislation did not extend major provisions past 2010. 

President George W. Bush advanced the idea of across-the-board tax cuts as one of the cornerstones of his economic policy since his first presidential campaign. In 2001, EGTRRA reduced marginal income tax rates, provided marriage tax penalty relief, temporary relief from the alternative minimum tax (AMT), and increased the child tax credit. JGTRRA accelerated the implementation of certain tax reductions that were being phased-in under the 2001 act. The 2003 act also reduced the tax rate on dividends and long-term capital gains income, effective through 2008. 

The Job Creation and the Working Family Tax Relief Act of 2004 (P.L. 108-311), the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), Tax Increase Prevention Act of 2007 (P.L. 110-166), the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), and American Recovery and Reinvestment Act of 2009 (P.L. 111-5) extended various provisions first enacted under EGTRRA and JGTRRA through 2010. As a result, after 2003, the tax system essentially maintained the constant level of tax relief first established by EGTRRA and JGTRRA. 

Proponents of the tax cuts believe that they encourage work, saving, and investing; help families raise children; address inequalities affecting married taxpayers; and provide other benefits. At the same time, expected budget surpluses played a big role in justifying the desirability and feasibility of the tax cuts in 2001. In reality, however, the budget was in deficit throughout the decade. Critics of the tax cuts question the fiscal responsibility of the tax cuts. In addition, critics point out that the benefits of tax cuts disproportionately accrue to higher-income taxpayers. 

In recent years some legislative initiatives propose extending the tax cuts with some restrictions. For example, President Obama's budgets in FY2010 and FY2011 proposed extending the tax cuts only for taxpayers with income below $200,000 or $250,000, depending on filing status. The FY2010 budget resolution (S.Con.Res. 13) conference report also accommodated permanent extension of many of the tax cuts generally in the same vein as the President's proposal.


Date of Report: March 15, 2010
Number of Pages: 17
Order Number: R41111
Price: $29.95

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