Expiration and Extension of the Individual Income Tax Cuts Enacted in 2001 Through 2008

Congressional research reportOct 17, 2008

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Prepared for Members and Committees of Congress

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This report traces the legislative history of the Economic Growth and Tax Relief Reconciliation

Act of 2001 (EGTRRA; P.L. 107-16) and its extensions, shows their time line, and provides a

general overview of their implications and revenue effects. The report focuses on the measures

that extend or curtail the key tax relief provisions of EGTRRA and follow-up legislation, rather

than modify the respective parts of the tax code in some new way. Many aspects of the tax cuts,

such as revenue feedback effects, have been discussed at length elsewhere, including other CRS

reports referenced in the text, therefore the details of these issues are left beyond the scope of this

report.

President Bush has advanced the idea of across-the-board tax cuts as one of the cornerstones of

his economic policy since his first presidential campaign. EGTRRA provided such relief, but all

of the act’s provisions are scheduled to sunset (revert to prior law levels) at the end of 2010. Thus,

Congress faces the issue of whether to let the tax cuts expire or extend them, and if so, how.

In 2001, EGTRRA reduced marginal income tax rates, provided marriage tax penalty relief,

provided temporary relief from the alternative minimum tax (AMT), and increased the child tax

credit. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27)

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 dividend and long-term capital gains income,

effective through 2008. The Working Family Tax Relief Act of 2004 (P.L. 108-311) extended

many of the EGTRRA and JGTRRA provisions scheduled to expire at the end of 2004. The Tax

Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) extended the capital gains and

dividend tax reduction through 2010 and the AMT relief for one year.

Additional tax reductions and extensions to these tax acts were included in the Job Creation and

Worker Assistance Act of 2002 (P.L. 107-147), the Tax Relief and Health Care Act of 2006 (P.L.

109-432), Tax Increase Prevention Act of 2007 (P.L. 110-166), and the Emergency Economic

Stabilization Act of 2008 (P.L. 110-343).

A number of bills have been introduced to extend all or some of the provisions of these acts.

Notably, S.Con.Res. 70, adopted by the Senate on March 14, 2008, included AMT relief and an

amendment (S.Amdt. 4160) by Senator Max Baucus that would provide more than $300 billion in

middle class tax relief. The corresponding House measure (H.Con.Res. 312) proposes to subject

the extension of the tax cuts to the pay-as-you-go rule. The conference agreement, approved by

both the House and Senate in early June 2008, accommodates extending some of the tax cuts in a

manner consistent with the pay-as-you-go rule.

This report will be updated to reflect legislative activity.

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Tax Legislation: 2001 Through 2008 .............................................................................................. 1

Recent Developments Related to Extension of the Tax Cuts Past 2010.......................................... 3

Extending the Cuts Past 2010: Key Considerations ........................................................................ 4

Table 1. Estimates Illustrating the Revenue Costs Associated with Extending EGTRRA

and JGTRRA and Reforming the AMT........................................................................................ 5

Table 2. Annual Projected Cost of Extending the Tax Cuts Including the AMT Relief, as a

Share of GDP, FY2012-FY2018 .................................................................................................. 6

Table 3. Estimated Revenue Effects of Extending Certain Major Expiring Tax Provisions

of 2001 Through 2008 Acts.......................................................................................................... 8

Table 4. Effective Individual Income Tax Rate for All Households, by Comprehensive

Household Income Quintile, 2000-2005 ...................................................................................... 9

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Appendix. Phase-in and Expiration Schedule of Select Major Tax Cut Provisions Under

EGTRRA, JGTRRA, WFTRA, TIPRA, and Other Relevant Acts, 2001-2011 ......................... 10

Author Contact Information .......................................................................................................... 13

Acknowledgments ......................................................................................................................... 13

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The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16)

provided individual income tax relief to a very large share of the population, reflecting President

Bush’s emphasis on tax cuts. The act’s provisions were scheduled to phase in over several years

at an estimated total cost of approximately $1.35 trillion over the FY2001-FY2011 period.1

EGTRRA reduced marginal income tax rates, created a new 10% income tax bracket, provided

marriage-tax penalty relief, increased the child tax credit, increased the alternative minimum tax

(AMT) exemption, and changed other elements of the tax system.

All of the changes in EGTRRA were temporary, expiring after 2010 or earlier. Congress included

the sunset in EGTRRA to avoid a Byrd rule (Section 313 of the 1974 Congressional Budget Act,

as amended) violation in the Senate. The Byrd rule prohibits “extraneous matter” in reconciliation

legislation.2 Under the rule, extraneous matter includes, among other things, language that would

cause an increase in the budget deficit (or reduce budget surpluses) in a fiscal year beyond those

covered by the reconciliation legislation. As a result of the Byrd rule, EGTRRA contained

language providing for the expiration of all of its provisions at the end of calendar year 2010—the

end of the reconciliation budget window.

In 2003, Congress passed the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA; P.L.

108-27). JGTRRA accelerated the implementation of many of the provisions that were being

phased in under EGTRRA, including marriage-tax penalty relief, expansion of the 10% tax

bracket, and increases in the child tax credit to $1,000 per qualifying child. The 2003 act also

included an increase in the AMT exemption (a so-called “AMT patch”). These JGTRRA changes

were scheduled to be in effect for only two years, 2003 and 2004.

In addition, JGTRRA lowered the maximum tax rate on qualified dividend income and long-term

capital-gains income to 15% (5% for taxpayers in the 10% and 15% marginal income-tax

brackets, dropping to 0% for these taxpayers in 2008). As originally enacted, these changes were

effective through January 1, 2009. The estimated cost of JGTRRA’s tax reduction provisions was

$329.7 billion over the FY2003-FY2013 period.3

The American Jobs Creation Act of 2004 (AJCA; P.L. 108-357), among other things,

contained a provision which allowed taxpayers to take an itemized deduction for state and local

general sales taxes in lieu of the itemized deduction for state and local income taxes. This

provision was to be in effect for two years, 2004 and 2005, at the cost of $3.6 billion.4

U.S. Congress, Joint Committee on Taxation (JCT), Estimated Budget Effects Of The Conference Agreement For H.R.

1836, JCX-51-01, May 26, 2001.

For more information see CRS Report RL30862, The Budget Reconciliation Process: The Senate’s “Byrd Rule”, by

Robert Keith. Other procedural aspects related to the budget process are discussed in CRS Report 97-865, Points of

Order in the Congressional Budget Process, by James V. Saturno; and CRS Report RL32835, PAYGO Rules for

Budget Enforcement in the House and Senate, by Robert Keith and Bill Heniff Jr.

CRS calculation based on U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects Of The Conference

Agreement For H.R. 2, The “Jobs And Growth Tax Relief Reconciliation Act Of 2003,” JCX-55-03, May 22, 2003.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of the Chairman’s Amendment in the Nature

of a Substitute to H.R. 4520, The “American Jobs Creation Act of 2004,” Scheduled for Markup by the Committee on

Ways and Means on June 14, 2004, Fiscal Years 2004 - 2014, JCX-43-04, June 10, 2004.

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In 2004, Congress also passed the Working Families Tax Relief Act of 2004 (WFTRA; P.L.

108-311). WFTRA extended several tax provisions that were set to expire at the end of 2004

under JGTRRA.

WFTRA extended the accelerated marriage-penalty tax relief provisions (the standard deduction

and 15% tax bracket for joint returns set at twice the level as those for single returns) through

2008. In 2009 and 2010, this level of tax relief would be maintained due to the full phase-in of the

corresponding provisions of EGTRRA. The 2004 act also extended the increase in the 10%

income-tax bracket through 2010.

WFTRA maintained the child tax credit at $1,000 through 2009 (for 2010, the EGTRRA

provisions apply and the child tax credit will remain at $1,000). In addition, WFTRA accelerated,

to 2004, the increase in the refundability of the child tax credit. For 2004 through 2010, the child

tax credit is refundable up to 15% of a taxpayer’s earned income in excess of the applicable

threshold. The 2004 act also allowed inclusion of combat pay in earned income for purposes of

computing child-tax-credit refundability.5

WFTRA extended for one year the increase in the basic exemption for the alternative minimum

tax (AMT) originally enacted under JGTRRA. (EGTRRA also included a temporary increase in

the AMT exemption which was then superseded by the JGTRRA increases.) The AMT exemption

for 2005 was set at $58,000 for joint returns and $40,250 for unmarried taxpayers.

In total, the WFTRA provisions were estimated to cost $131.4 billion over the FY2005-FY2014

time period.6

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA; P.L. 109-222), passed

by Congress in May 2006, extended the dividend and capital gains tax reductions through 2010.

These reductions were enacted in 2003 and originally scheduled to expire in 2008. The estimated

cost of these extensions was $50.8 billion over the FY2006-FY2015 period.7

For 2006, TIPRA also increased the basic AMT exemption to $62,550 for joint returns and to

$42,500 for unmarried taxpayers. In addition, TIPRA extended through 2006 the provision that

allows taxpayers to apply non-refundable tax credits against their AMT tax liability. The

combined cost of these AMT provisions was $33.9 billion.8 These temporary increases in the

basic exemption for the AMT and changes in the treatment of non-refundable tax credits were

once again enacted as a means of mitigating the interaction between the reduced regular income

tax liabilities and the AMT. In 2007, the AMT exemption reverted to its pre-EGTRRA-law levels

of $45,000 for joint returns and $33,750 for unmarried taxpayers.

The Tax Increase Prevention Act of 2007 (TIPA; P.L. 110-166), passed by Congress in

December 2007, extended AMT tax relief retroactively for one year at a cost of $50.6 billion.9

For details see CRS Report RL34715, The Child Tax Credit, by Maxim Shvedov.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects Of The Conference Agreement For H.R.

1308, The “Working Families Tax Relief Act Of 2004,” JCX-60-04, Sept. 23, 2004.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects Of The Conference Agreement For The “Tax

Increase Prevention And Reconciliation Act Of 2005,” JCX-18-06, May 9, 2006.

Ibid., p. 2.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of H.R. 4351, the “AMT Relief Act of 2007,”

Scheduled for Consideration by the House of Representatives on December 12, 2007, JCX-114-07, Dec. 12, 2007.

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TIPA set the 2007 AMT exemption levels at $66,250 for joint returns and $44,350 for single

returns. In addition, the law allowed non-refundable personal tax credits to offset AMT tax

liability for 2007.

The Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343), extended AMT

relief and expanded refundability of the child tax credit for 2008. EESA increased the AMT

exemption amounts to $46,200 for individuals and $69,950 for joint returns. Similar to TIPA, the

law also allows the personal credits against the AMT. The estimated cost of this provision is

$61.817 billion over 10 years.10

EESA also extended an itemized deduction for state and local sales taxes through the end of 2009.

The JCT estimated the cost of this provision at $3.304 billion over 10 years.

In addition, EESA reduced the earned income threshold used in calculating the refundable portion

of the credit to $8,500 from $12,050 for 2008. The change is effective for a single tax year

beginning after December 31, 2007. The estimated cost of the proposal is $3.129 billion over 10

years.11 The change led to an increase in the amount and availability of the refundable child credit

for lower income households.

Additional broad tax reductions or extensions were enacted in the same time period as parts of the

other acts: the Job Creation and Worker Assistance Act of 2002 (JCWAA; P.L. 107-147) and

the Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-432). JCWAA’s provisions

modified depreciation rules at the cost of $17.9 billion over FY2002-FY2012.12 TRHCA extended

the sales tax deductibility provision for tax years 2006 and 2007. The Joint Committee on

Taxation estimated that the two-year extension of this provision would reduce federal revenues by

approximately $5.5 billion.13

The phase-in and expiration schedules of the various tax provisions enacted under the 2001

through 2008 tax acts are shown in the Appendix.

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On March 14, 2008, the Senate passed an FY2009 budget resolution (S.Con.Res. 70). Revenue

aggregates in the measure reflect an amendment (S.Amdt. 4160) by Senator Max Baucus that

proposes to accommodate more than $300 billion in tax cuts for the middle class, homeowners,

U.S. Congress, Senate Finance Committee, Detailed Summary of Energy, Disaster Relief, AMT, and Other Tax

Extender Provisions in Emergency Economic Stabilization Act of 2008, Oct. 1, 2008, as reported by BNA, Inc.,

TaxCore - Congressional Documents, Legislation, No. 191, Oct. 2, 2008.

U.S. Congress, Joint Committee on Taxation, JCX-78-08, Estimated Budget Effects of the Tax Provisions Contained

in an Amendment in the Nature of a Substitute to H.R. 1424, Scheduled for Consideration on the Senate Floor on

October 1, 2008, Oct. 1, 2008, p. 9.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects Of The “Job Creation And Worker

Assistance Act Of 2002,” JCX-13-02, March 6, 2002.

U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects Of The Revenue Provisions Contained In

H.R. 6408, The “Tax Relief And Health Care Act Of 2006,” As Introduced In The House Of Representatives On

December 7, 2006, JCX-51-06, December 7, 2006.

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and active duty military personnel over five years and pays for them with projected surpluses in

FY2012 and FY2013. The bill also proposes to accommodate an AMT patch.

The corresponding House measure (H.Con.Res. 312), adopted on March 13, 2008, also proposes

to accommodate extending some of the expiring tax cuts as well as an AMT patch, but, in contrast

to the Senate bill, subjects them to the “pay-as-you-go” rule, requiring offsetting revenue raisers.

The conference agreement, approved by both the House and Senate in early June 2008, supports

tax relief consistent with the pay-as-you-go rule. Its baseline projections propose to accommodate

such tax relief items as marriage penalty relief, the child tax credit, and the 10% bracket, and a

one-year AMT relief.14

The budget resolution, which is enforced by various points of order, may constrain the size of the

tax cuts subsequently considered in revenue measures, but it does not make any changes to the

tax code by itself. Revenue legislation, which does make such changes, generally is considered by

the House and Senate within the framework established by the annual budget resolution.

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Proposals relating to the future of the 2001-2008 tax reductions range from their early recision to

unconditional permanent extension. Several aspects of this decision play a key role in shaping the

views of many policymakers. They include (1) the general desirability of providing tax relief, (2)

the cost of the cuts in view of budgetary constraints, and (3) the distribution of the tax cuts’

benefits among different income groups of taxpayers.

In addition, the extension of the tax cuts is intertwined with modifying the AMT. In general, a

taxpayer pays either the AMT or the regular tax, whichever is higher. Thus, absent congressional

action, the AMT will “take back” most of the tax relief granted through the regular income tax, as

the AMT becomes higher than the regular tax for many taxpayers.15 Hence, Congress faces not

only the issue of whether or not to extend or make permanent the reductions in the regular income

tax, but also how to coordinate the changes between these two parallel tax systems.16

Modifying the AMT is probably the most pressing individual income tax issue currently facing

Congress. It is estimated that, if the reductions in the individual income tax are extended beyond

2010, the number of taxpayers subject to the AMT will increase from over 1 million in 2001 to

about 26 million in 2008, and then to almost 51 million in 2017.17

U.S. Congress, Conference Committees, 2008, Concurrent Resolution on the Budget for Fiscal Year 2009,

conference report to accompany S.Con.Res. 70, H.Rept. 110-659, 110th Cond., 2nd sess. (Washington: GPO, 2008), pp.

73-75.

For more information on the “take back” effect see CRS Report RS21817, The Alternative Minimum Tax (AMT):

Income Entry Points and “Take Back” Effects, by Steven Maguire.

See CRS Report RS22909, The Alternative Minimum Tax for Individuals: Legislative Activity in the 110th Congress,

by Steven Maguire and Jennifer Teefy.

U.S. Congress, Joint Committee on Taxation, Present Law and Background Relating to

the Individual Alternative Minimum Tax, JCX-38-07, June 25, 2007, pp. 11, 17.

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It is difficult to generalize about the economic effects of the 2001-2008 tax cut provisions due to

their diverse nature, but economic theory suggests that some of them (for example, lower

marginal tax rates) are likely to reduce economic distortions—undesirable changes in behavior of

economic agents resulting from imposing a tax. Thus, policymakers will weigh the benefits of tax

reduction measures against their budgetary costs and other consequences. Ultimately, the

conclusion would depend on many factors: the specifics of the provisions, the time horizon, and

the financing method, to name just a few. Detailed analysis of this issue, however, goes beyond

the scope of this paper.18 In addition, tax reductions might be attractive for political or other

reasons unrelated directly to economic performance.

Counterbalancing the desire to provide continued tax relief is the concern over the current and

projected size of the federal budget deficit. The revenue effects of extending or making

permanent the tax reductions would be substantial. Moreover, once the costs of fixing the AMT

are included, the revenue costs associated with maintaining the current level of tax relief increase

considerably.

For instance, Table 1 presents Congressional Budget Office (CBO) estimates of the cost of

extending the EGTRRA and JGTRRA tax reductions and reforming the AMT.19 In addition to the

direct costs of these policy options, the table also presents associated debt service costs—indirect

costs, which would arise if these policies are deficit financed (that is, if there are no offsetting tax

increases or spending reductions). Due to strong interactive effects between various tax

provisions and other assumptions, these numbers should be treated as order-of-magnitude

estimates.

According to Table 1, the estimated total cost of extending the EGTRRA and JGTRRA tax cuts,

reforming the AMT, and servicing related debt would be $4.3 trillion over the FY2009-FY2018

period, but only $1.3 trillion over the first five years of this period. The projected cost of the

second five years would be almost 2½ times that of the first five.

. Estimates Illustrating the Revenue Costs Associated with Extending

EGTRRA and JGTRRA and Reforming the AMT

Table 1

(dollar amounts in billions of dollars)

Policy Alternative

Extend EGTRRA and JGTRRA (excluding AMT-related provisions)

Debt service

Reform the AMT

Debt service

Interaction between the above provisions

Debt service

FY2009-FY2013

692

313

148

FY2009-FY2018

2,277

444

724

189

598

105

For more information see CRS Report RL32502, What Effects Did the 2001 to 2003 Tax Cuts Have on the

Economy?, by Marc Labonte.

Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018, January 2008, p. 12,

and associated data contained in Backup Data for Table E-1: CBO’s Year-by-Year Forecast and Projections for

Calendar Years 2008 to 2018, Excel spreadsheet, downloaded on March 18, 2008, from http://cbo.gov/ftpdocs/89xx/

doc8917/8917_TableC-1.xls.

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Policy Alternative

FY2009-FY2013

FY2009-FY2018

Total direct cost

1,153

3,599

Total cost

1,253

4,337

Source:

Congressional Budget Office,

The Budget and Economic Outlook: Fiscal Years 2008 to 2018, and CRS

calculations.

Better understanding of the cost-increase dynamics is helpful in assessing the long-term revenue

implications of extending the tax cuts. Table 2 uses the data for FY2012, when most of the

transitionary effects would become negligible, through FY2018 to estimate annual cost relative to

gross domestic product (GDP). It demonstrates that the projected direct cost grows by more than

20% over this six-year span. The total cost, including the debt service cost, grows by almost 50%

over the same time period. Thus, it appears that if the tax cuts were extended, their cost would

likely grow rapidly over time both in real and nominal terms.

Table 2. Annual Projected Cost of Extending the Tax Cuts Including the AMT Relief,

as a Share of GDP, FY2012-FY2018

(dollar amounts in billions of dollars)

Nominal GDP (calendar year)

Total cost, including debt service

above, as a share of GDP

Total cost, excluding debt service

above, as a share of GDP

Source:

2012

2013

2014

2015

2016

2017

2018

17,453

386

2.2%

357

2.0%

18,243

449

2.5%

399

2.2%

19,062

497

2.6%

426

2.2%

19,896

552

2.8%

455

2.3%

20,758

611

2.9%

486

2.3%

21,654

676

3.1%

520

2.4%

21,654

748

3.3%

559

2.5%

Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018, and CRS

calculations.

Recent CBO analysis of the effects of extending the tax cuts on the long-term budget picture

using a 75-year time horizon confirms that extending the tax cuts would represent a major longterm budgetary commitment.20 CBO conducted the analysis in terms of the fiscal gap—“the

immediate and permanent change in spending or revenues that would reduce the government’s

projected debt in 2082 to its current level as a share of” GDP.21 Under the “extended-baseline”

scenario, which closely adheres to current law and thus assumes expiration of the tax cuts in

2010, the fiscal gap would be 1.7% of GDP.

CBO analysis indicates that extending the individual income tax portion of the 2001-2008 tax

cuts without providing AMT relief past 2007 would result in 0.7% additional fiscal gap, yielding

a total fiscal gap of 2.4% of GDP. Assuming AMT relief measures are extended at 2007 levels

and then indexed for inflation, the reduction in revenue would double the incremental fiscal gap

to 1.4%, leading to 3.1% total. Finally, adding the extension of the estate and gift tax reductions

would add 0.7% more to that total.

Congressional Budget Office, The Long-Term Budgetary Effects of Three Specified Policy Scenarios, Letter to the

Honorable John M. Spratt Jr., March 14, 2008.

Ibid., p. 2.

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Some proponents of extending the tax cuts argue that incremental economic activity generated by

lowering taxes would largely offset the cuts’ cost. While many of their opponents might agree that

some positive revenue feedback effect is likely, they contend that its magnitude is considerably

smaller than the direct cost of the tax relief. In addition, theory suggests that revenue feedback

effects depend on the design of the measures, implying that feedback for some of the provisions

of EGTRRA and follow-up legislation would be larger than for others.22

Partially extending the cuts might represent a compromise that would continue to provide some

tax relief, while keeping its costs lower. Some proposals limit tax reductions by directly setting

income limits for their recipients. Other proposals try to extend only those tax reductions that

benefit taxpayers at the target income range.

For example, during the 2008 presidential campaign, Senators John McCain and Barack Obama

differed in their approach to extending the tax cuts. Senator McCain supported extending most of

them. He also advocated unrelated tax policies.

Senator Obama limited his support to the elements of the tax cuts that largely benefit middle- or

lower-income families. For example, he indicated his support of extending the reduced marginal

tax rates of 28% and below, but repealing the reduction of the marginal tax rates above that level.

Among other measures favored by Senator Obama were also the increased child tax credit and

marriage penalty elimination provisions.23 Since the election, the policy preferences of Presidentelect Obama might have changed somewhat in response to deteriorating economic conditions, but

as of this writing they remain unknown.

Table 3 reproduces CBO estimates of extending the tax reductions by individual provision or a

distinct group of provisions.24 The estimates provide the general magnitude of the cost and

relative size of extending each provision. However, because of the interaction between the

provisions, extending all of the tax provisions would produce a greater revenue loss than the

revenue loss indicated by summing up the revenue costs of all the extended provisions.

Finally, there is always an option of providing tax relief through a different set of policies, more

loosely or not at all related to the 2001 through 2008 tax cuts. For example, the reductions of

some of the marginal rates might be extended, while others modified, or allowed to expire for

years after 2010. A large number of possible alternatives are listed in the CBO Budget Options

report,25 as well as in other publications issued by various government and private entities.

For more information on revenue feedback effects and recent studies on the subject, see CRS Report RL33672,

Revenue Feedback from the 2001-2004 Tax Cuts, by Jane G. Gravelle.

CCH Tax Briefing, Tax Policies of the Presidential Candidates, Special Report, Sept. 18, 2008.

Congressional Budget Office, Updated Estimates for Table 4-9, “Effects of Extending Tax Provisions Scheduled to

Expire Before 2018,” in The Budget and Economic Outlook: Fiscal Years 2008 to 2018, January 2008, pp. 101-106,

downloaded on March 21, 2008, from https://www.cbo.gov/ftpdocs/90xx/doc9040/ExpiringProvisions.pdf.

Congressional Budget Office, The Budget Options, February 2007, p. 922.

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. Estimated Revenue Effects of Extending Certain Major Expiring Tax Provisions of 2001 Through 2008 Acts

Table 3

(dollar amounts in billions of dollars)

Tax Provision

Deduction of state and local sales

taxesa

Increased AMT exemption amounta

Personal credits under the AMT

Child credit at $1,000

Earned income credit modification

Estate and gift tax changes

Expanded 10% bracket

Income tax rates of 25%-35%

Itemized deduction and personal

exemption phaseout

Joint filers’ 15% bracket and standard

deduction

Other provisions of EGTRRA

Reduced tax rates on capital gains

Reduced tax rates on dividends

Interaction from extending all

provisions togetherb

Source:

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Expiration

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2009-

2013

2018

2007

–0.4

–2.4

–2.6

–2.7

–2.9

–3.0

–3.1

–3.2

–13.5

–28.9

2007

2010

–5.4

–0.1

n.a.

–72.7

–0.4

n.a.

–1.4

n.a.

–70.0

–0.5

n.a.

–2.3

n.a.

–64.1

–0.5

–7.1

0.1

–30.5

–31.4

–44.3

–36.3

–0.2

–35.4

–4.0

–69.4

–44.9

–65.7

–42.0

–0.2

–35.6

–4.0

–77.0

–44.7

–68.2

–48.9

–0.3

–36.0

–4.0

–84.2

–44.1

–71.0

–56.7

–0.4

–36.4

–4.0

–90.7

–43.4

–74.5

–64.9

–0.5

–36.7

–4.1

–97.4

–43

–78.3

–73.5

–0.6

–36.9

–4.2

–104.9

–42.6

–82.4

–83.7

–0.7

–37.0

–4.2

–112.0

–42.1

–86.6

–285.2

–1.9

–78.1

–7.9

–180.6

–121

–178.2

–612.8

–4.3

–260.9

–28.3

–669.8

–336.2

–571.0

2010

n.a.

–7.2

–14.9

–15.9

–16.9

–18.0

–19.2

–20.4

–21.8

–38.0

–134.2

2010

n.a.

–5.6

–7.9

–7.4

–6.9

–6.5

–6.3

–6.0

–5.7

–20.9

–52.3

2010

n.a.

0.3

n.a.

–2.3

0.8

–0.3

–12.3

–5.4

–1.3

2.2

–22.3

–1.3

–14.7

–26.2

–1.4

–14.6

–27.8

–1.4

–14.7

–29.7

–1.5

–14.8

–31.2

–1.4

–15.1

–32.8

–1.5

–15.4

–34.4

–2.9

–27.1

–52.8

–10.2

–101.5

–208.8

n.a.

0.0

–15.2

–52.0

–56.6

–60.5

–63.8

–66.5

–68.5

–69.8

–123.8

–453.0

Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018.

The estimate does not incorporate the effects of the Emergency Economic Stabilization Act of 2008.

“Interaction from extending all provisions together” accounts for all provisions expiring before 2018, including the ones not listed in Table 3.

¡ȱȱ¡ȱȱȱ ȱ ȱ¡ȱȱǰȱŘŖŖŗȬŘŖŖŞȱ

One of the key considerations in deciding how to proceed might be the distributional effects of

the enacted measures. Table 4 presents CBO data on the effective individual income tax rates in

2000-2005.26 By 2005 most of the tax reductions were phased in, thus the analysis may serve as a

reasonably close approximation to the effects of the fully phased-in tax cuts. The tax cuts were

the key, although not the only, factor determining the distribution of the tax burden over the time

span shown.

Examination of Table 4 shows that the effective tax rate for all taxpayers fell by 2.8 percentage

points, from 11.8% to 9%. However, the gains are distributed unevenly among taxpayers

belonging to different quintiles—groups of one-fifth of all households, arranged by income.

Whereas the lowest quintile received a 1.9 percentage point cut, the top quintile’s cut was 3.4

percentage points. None of the bottom four quintiles received a cut exceeding 2.5 percentage

points, but the taxpayers in the top 1% received a reduction of 4.8 percentage points. Expanding

the analysis to include the reductions in the estate tax would likely exacerbate the difference.

. Effective Individual Income Tax Rate for All Households, by Comprehensive

Household Income Quintile, 2000-2005

Table 4

(percentage points)

Year

2000

2001

2002

2003

2004

2005

Change from

2000 to 2005

Source:

Lowest

Quintile

Second

Quintile

Middle

Quintile

Fourth

Quintile

Highest

All

Top Top Top

Quintile Quintiles 10% 5% 1%

-4.6

-5.6

-6.0

-6.2

-6.5

1.5

0.3

-0.2

-1.1

-0.9

-1.0

5.0

3.9

3.6

2.8

3.0

8.1

7.1

6.7

5.9

6.0

17.5

16.3

15.5

13.7

13.9

14.1

11.8

10.3

9.7

8.4

8.7

9.0

19.7

18.7

17.9

15.8

15.9

16.0

21.6

20.8

20.0

17.7

17.6

24.2

24.1

23.7

20.4

19.7

19.4

-1.9

-2.5

-2.0

-2.1

-3.4

-2.8

-3.7

-4.0

-5.0

Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, and CRS calculations.

Depending on the policymaker’s view, such a distribution might or might not be desirable. At the

same time, it is possible to make the cuts more affordable and more evenly spread across

taxpayers at all income levels, because the budgetary cost of a single percentage point reduction

in taxes for the highest-income taxpayers is much higher than a single-point reduction for the

lower-income taxpayers.27

Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007, Data Files,

Appendix: Detailed Tables for 1979 to 2005, Appendix_tables_toc.xls, downloaded on March 24, 2008, from

http://www.cbo.gov/ftpdoc.cfm?index=8885&type=2.

For more information see CRS Report RL32693, Distribution of the Tax Burden Across Individuals: An Overview,

by Jane G. Gravelle and Maxim Shvedov.

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şȱ

¡ȱȱ¡ȱȱȱ ȱ ȱ¡ȱȱǰȱŘŖŖŗȬŘŖŖŞȱ

¡ǯ ȱȬȱȱ¡ȱȱȱȱȱ¡ȱȱ

ȱȱ ǰȱ ǰȱǰȱ ǰȱȱȱȱ

ǰȱŘŖŖŗȬŘŖŗŗȱ

Provision

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Tax Rates and Brackets

Create 10 percent

tax bracket

Reduce tax rates

in top four tax

brackets

Reduce tax rates

on capital gains

and dividends

EGTRRA: $12,000 /

$6,000 brackets for

couples / singles

EGTRRA: EGTRRA:

39.1%

38.6%

35.5%

35%

30.5%

30%

27.5%

27%

No change.

ȬŗŖȱ

WFTRA: $14,000 / $7,000 for

couples / singles

EGTRRA: $14,000 / $7,000 for couples

/ singles. Index in 2009.

Bracket

expires.

EGTRRA:

35%

33%

28%

25%

Reverts to:

39.6%

36%

31%

28%

Up to 20%

or regular

tax rates

JGTRRA:

15% / 0%

JGTRRA: 15% or 5% rate depending on income.

TIPRA: 15% / 0%

Limits on Itemized Deductions and Personal Exemptions

Reduce or

eliminate limits

on itemized

deductions and

personal

exemptions

Increase

exemption for the

alternative

minimum tax for

couples/singles

JGTRRA: $14,000 / $7,000

for couples / singles. Index

in 2004.

JGTRRA:

35%

33%

28%

25%

EGTRRA: Reduce

limits by one-third

No change

EGTRRA: Reduce limits

by two-thirds

EGTRRA:

Repeal

limits

Limits

reinstated

Alternative Minimum Tax

EGTRRA: Increase to

$49,000 / $35,750

JGTRRA: $58,000 /

$40,250

WFTRA:

$58,000 /

$40,250

TIPRA:

$65,550 /

$42,500

TIPA:

$66,250

$44,350

EESA:

$69,950 /

$46,200

Reverts to $45,000 / $33,750 couple /

single exemption structure

¡ȱȱ¡ȱȱȱ ȱ ȱ¡ȱȱǰȱŘŖŖŗȬŘŖŖŞȱ

Provision

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Deduction for State and Local General Sales Taxes

Allow deduction

for sales taxes

No change

Increase first-year JCWAA: Additional 30%

depreciation

allowance

AJCA: allow the deduction

TRHCA: extend the

deduction

EESA: extend the

deduction

Bonus Depreciation

JGTRRA: Additional 50%

allowance

Deduction expires

Reverts to pre-2001 law as amended by subsequent legislation

Children and Married Couples

Increase child tax

credit

Expand

refundability of

child tax credit

Increase

dependent care

credit

Increase standard

deduction for

married couples

Expand 15

percent bracket

for married

couples

EITC phase-out

income for

married couples

Ȭŗŗȱ

EGTRRA: Increase

credit to $600

JGTRRA: $1000 credit

EGTRRA: Expanded eligibility,

Refundable up to 10% over indexed

threshold

change

No change

change.

WFTRA:

Refundable

up to 15%

EGTRRA:

$1000

credit

Reverts to

$500

credit

EGTRRA: Expanded

eligibility, refundable up

to 15% over indexed

threshold

Limited

eligibility

WFTRA: $1000 credit

EGTRRA: Expanded eligibility,

refundable up to 15% over indexed

threshold

EESA:

Lower

income

threshold;

EGTRRA

still applies

EGTRRA: Maximum credit of $3,000 for one child and $6,000 for two or more children

JGTRRA: Deduction for

couples is 200% of the

deduction for singles

JGTRRA: Maximum

income for couples is

200% of the maximum for

singles

EGTRRA: Increase by $1,000

Reverts to

$2400 /

$4800

EGTRRA: Deduction for

couples is 200% of the

deduction for singles

Reverts to

167%

WFTRA: Maximum income for

couples is 200% of the maximum for

singles

EGTRRA: Maximum income for couples

is 200% of the maximum for singles

Reverts to

167%

EGTRRA: Increase by $2,000

EGTRRA: Increase by $3,000. Index in

2009

increase.

WFTRA: Deduction for couples is 200% of the

deduction for singles

¡ȱȱ¡ȱȱȱ ȱ ȱ¡ȱȱǰȱŘŖŖŗȬŘŖŖŞȱ

Provision

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

EGTRRA:

$3.5

million /

45%

EGTRRA:

Estate tax

repealed

Changes

to $1

million /

55%

Estate Tax

Change

exemption level /

top rate structure

change.

EGTRRA:

$1 million /

50%

EGTRRA:

$1 million

/ 49%

EGTRRA:

$1.5 million

/ 48%

EGTRRA:

$1.5

million /

47%

EGTRRA:

$2 million

/ 46%

EGTRRA: $2 million /

45%

Source: CRS adaptation of Congressional Budget Office and Joint Committee on Taxation tables and publications.

Note: EGTRRA—Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16, 2001, introduced as H.R. 1836); JCWAA—Job Creation and Worker

Assistance Act of 2002 (P.L. 107-147, 2002, introduced as H.R. 3090); JGTRRA—Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27, 2003, introduced as

H.R. 2); WFTRA—Working Families Tax Relief Act of 2004 (P.L. 108-311, 2004, introduced as H.R. 1308); AJCA—American Jobs Creation Act of 2004 (P.L. 108-357,

2004, introduced as H.R. 4520); TIPRA—Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222, 2006, introduced as H.R. 4297); TRHCA—The Tax Relief

and Health Care Act of 2006 (P.L. 109-432, 2006, introduced as H.R. 6111); TIPA—Tax Increase Prevention Act of 2007 (P.L. 110-166, 2007, introduced as H.R. 3996);

EESA—Emergency Economic Stabilization Act of 2008 (P.L. 110-343, 2008, introduced as H.R. 1424).

ȬŗŘȱ

¡ȱȱ¡ȱȱȱ ȱ ȱ¡ȱȱǰȱŘŖŖŗȬŘŖŖŞȱ

ȱȱ ȱ

Maxim Shvedov

Analyst in Public Finance

mshvedov@crs.loc.gov, 7-4639

This includes significant contributions from Gregg Esenwein, now retired from CRS.

ȱȱȱ

ŗřȱ

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.