The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) is a Republican tax cut program that was approved in the first year of George Bush’s presidency. It was enacted to help stimulate the economy and restore financial confidence after 9/11. In an effort to save taxpayers nearly $1.4 trillion over a 10-year period, the Act made significant changes in several areas of the US Internal Revenue Code, including income tax rates, estate and gift tax exclusions, and qualified and retirement plan rules.
In general, the act lowered tax rates and simplified retirement and qualified plan rules such as for Individual retirement accounts, 401(k) plans, 403(b), and pension plans. The overall result was refund checks being mailed to most taxpayers and increased tax credits for families with children.
Among other things, the Act increased the amount of tax-deductible contributions taxpayers could make to their IRA accounts and repealed estate and gift taxes.
The EGTRRA initially helped the economy by stimulating spending during the recessionary period of 2001. It also has incentives for taxpayers to save more. However, creating such a dramatic cut in government income, the EGTRRA, hurts the economy by reducing government receipts that increase each year’s annual deficit, and thereby the U.S. debt.
According to Kimberly Amadeo, an economist and publisher of WorldMoneyWatch.com: “Probably the most damaging aspect of EGTRRA is its “sunset” provision. Although it was designed to expire in 2011, Congress will probably not have the courage to end it, and re-instate higher taxes. Therefore, it will potentially reduce Government revenues just when those revenues are needed most to pay back Social Security funds in time for the retirement of the Baby Boomer generation.”
The U.S. House of Representatives is poised to receive an estate tax bill this coming week in order to renew the rules for estate taxes. As it stands, estates under $3.5 million are exempt from paying this “inheritance tax” but anything over that amount could be subject to a maximum of 45% tax. If no action is taken before the original bill expires, the tax will revert to the pre- 2001 rules of exemptions under $1 million.
For a more detailed analysis on the subject please read Beth Shapiro Kaufman’s essay Estate Tax Legislation in 2009: Avoiding the Train Wreck.
I’ve been interested in taxations for lengthier then I care to admit, both on the individualized side (all my working life-time!!) and from a legal point of view since passing the bar and following up on tax law. I’ve rendered a lot of advice and righted a lot of wrongs, and I must say that what you’ve posted makes complete sense. Please continue the good work – the more people know the better they’ll be equipped to deal with the tax man, and that’s what it’s all about.