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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/crs%3ARL34425

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** October 17, 2008
- **Citation:** RL34425

## Text

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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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˜—Ž—œȱ
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

Š‹•Žœȱ
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

™™Ž—’¡Žœȱ
Appendix. Phase-in and Expiration Schedule of Select Major Tax Cut Provisions Under
EGTRRA, JGTRRA, WFTRA, TIPRA, and Other Relevant Acts, 2001-2011 ......................... 10

˜—ŠŒœȱ
Author Contact Information .......................................................................................................... 13
Acknowledgments ......................................................................................................................... 13

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Š¡ȱŽ’œ•Š’˜—DZȱŘŖŖŗȱ‘›˜ž‘ȱŘŖŖŞȱ
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

1

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.
2
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.
3
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.
4
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
5

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.
7
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.
8
Ibid., p. 2.
9
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.
6

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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.

ŽŒŽ—ȱŽŸŽ•˜™–Ž—œȱŽ•ŠŽȱ˜ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ
Š¡ȱžœȱŠœȱŘŖŗŖȱ
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,
10
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.
11
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.
12
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.
13
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.

¡Ž—’—ȱ‘ŽȱžœȱŠœȱŘŖŗŖDZȱ Ž¢ȱ˜—œ’Ž›Š’˜—œȱ
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

14

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.
15
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.
16
See CRS Report RS22909, The Alternative Minimum Tax for Individuals: Legislative Activity in the 110th Congress,
by Steven Maguire and Jennifer Teefy.
17
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.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

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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
46
313
45
148
9

FY2009-FY2018
2,277
444
724
189
598
105

18

For more information see CRS Report RL32502, What Effects Did the 2001 to 2003 Tax Cuts Have on the
Economy?, by Marc Labonte.
19
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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ȱ

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.

20

Congressional Budget Office, The Long-Term Budgetary Effects of Three Specified Policy Scenarios, Letter to the
Honorable John M. Spratt Jr., March 14, 2008.
21
Ibid., p. 2.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

Ŝȱ

ȱ

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

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.

22

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.
23
CCH Tax Briefing, Tax Policies of the Presidential Candidates, Special Report, Sept. 18, 2008.
24
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.
25
Congressional Budget Office, The Budget Options, February 2007, p. 922.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

ŝȱ

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ȱ

. 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:

a.
b.

ȬŞȱ

Expiration

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2009-

2009-

2013

2018

2007

–0.4

–2.4

–2.6

–2.7

–2.9

–2.9

–3.0

–3.0

–3.1

–3.1

–3.2

–13.5

–28.9

2007
2007
2010
2010
2010
2010
2010

–5.4
–0.1
n.a.
n.a.
n.a.
n.a.
n.a.

–72.7
–0.4
n.a.
n.a.
–1.4
n.a.
n.a.

–70.0
–0.5
n.a.
n.a.
–2.3
n.a.
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.

n.a.

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.

n.a.

n.a.

–5.6

–7.9

–7.4

–6.9

–6.5

–6.3

–6.0

–5.7

–20.9

–52.3

2010
2010
2010

n.a.
n.a.
n.a.

n.a.
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

0.0

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.

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ȱ

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
-6.0
-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
3.0

8.1
7.1
6.7
5.9
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
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

26
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.
27
For more information see CRS Report RL32693, Distribution of the Tax Burden Across Individuals: An Overview,
by Jane G. Gravelle and Maxim Shvedov.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

şȱ

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ȱ

™™Ž—’¡ǯ ȱ‘ŠœŽȬ’—ȱŠ—ȱ¡™’›Š’˜—ȱŒ‘Žž•Žȱ˜ȱŽ•ŽŒȱŠ“˜›ȱŠ¡ȱžȱ
›˜Ÿ’œ’˜—œȱ—Ž›ȱ ǰȱ ǰȱǰȱ ǰȱŠ—ȱ‘Ž›ȱŽ•ŽŸŠ—ȱ
ŒœǰȱŘŖŖŗȬŘŖŗŗȱ
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

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ȱ
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
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
No
change
No change
No change

No
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

No
increase.

WFTRA: Deduction for couples is 200% of the
deduction for singles

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ȱ
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

No
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

ȱ

¡™’›Š’˜—ȱŠ—ȱ¡Ž—œ’˜—ȱ˜ȱ‘Žȱ —’Ÿ’žŠ•ȱ —Œ˜–ŽȱŠ¡ȱžœȱ—ŠŒŽǰȱŘŖŖŗȬŘŖŖŞȱ

ž‘˜›ȱ˜—ŠŒȱ —˜›–Š’˜—ȱ
Maxim Shvedov
Analyst in Public Finance
mshvedov@crs.loc.gov, 7-4639

Œ”—˜ •Ž–Ž—œȱ
This includes significant contributions from Gregg Esenwein, now retired from CRS.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

ŗřȱ

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3ARL34425. Public record. Not legal advice.