Economic Growth and Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 was a sweeping piece of tax legislation in the United States. It is commonly known by its abbreviation EGTRRA, often pronounced "egg-tra" or "egg-terra", and sometimes also known simply as the 2001 act, especially when it is clear the context of the discussion is regarding taxes. It had major impact and changes in many 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 changes were so large and numerous that many many books and analysis papers were published regarding the changes and how to best take advantage of them.
Many of the tax reductions in EGTRRA were designed to be phased in over a period of up to 9 years. Many of these slow phase-ins were accelerated by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), which removed the waiting periods for many of EGTRRA's changes.
Sunset Provision
Due to the unusual way that congressional budgets are approved, one of the most notable characteristics of EGTRRA is that its provisions are designed to sunset, or revert to that provisions that were in effect before it was passed. EGTRRA will sunset on Jan 1, 2011 unless further legislation is enacted to make its changes permanent.
Impact of the Alternative Minimum Tax
EGTRRA and the 2003 act significantly nominally lowered the marginal tax rates for nearly all US taxpayers. However by doing this it brought to prominence a previously lesser known provision of the US Internal Revenue Code, known as the Alternative minimum tax. The Alternative Minimum Tax, AMT was originally designed as a way of making sure that wealthy taxpayers could not take advantage of "too many" tax incentives and reduce their tax obligation by too much. It is an alternate system of calculating a taxpayer's tax liability that removes many so called "tax preference items". However the applicable AMT rates were not adjusted in step with the lowered rates of EGTRRA and the 2003 act, causing many more people to face higher taxes because of the AMT than had originally been planned. This reduced some of the benefit of EGTRRA and the 2003 act for many middle income earners.
Major tax areas impacted
Income tax rates
Qualified and retirement plans
Educational savings incentives
Estate and gift tax rules
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