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US Department of the Treasury
Undated. Added August, 2003.
2001 Tax Bill Summary
Summary of H.R. 1836 - The Economic Growth and Tax Relief Reconciliation Act of 2001 (Conference Report)
House GOP Committee Central
May 25, 2001
Summary
The conference report to H.R.
1836 provides $1.35 trillion in tax relief to the American people. It
eliminates the marriage penalty for most middle class taxpayers, eliminates the
death tax by the year 2010, promotes long-term economic growth and short
term-economic stimulus. The long-term economic growth package lowers tax
rates for all Americans and provides pension reforms that will increase
tax–free IRA and 401 (k) contributions. Immediate economic stimuli is
provided by tax refunds this year.
Conference Report Highlights
Marginal Rate Reductions
The conference report to H.R.
1836 provides immediate tax relief by reducing the current 15 percent tax rate
on the first $12,000 of taxable income for couples ($6,000 for singles). A
new 10 percent rate will apply retroactively from January 1, 2001. The
bill further reduces the marginal rate brackets so that by
2006, the current structure of five regular income tax rates (15 percent, 28
percent, 31 percent, 36 percent and 39.6 percent) will be reduced to the
corresponding rates respectively (10 percent, 15 percent, 25 percent, 28
percent, 33 percent, and 35 percent). The conference report also provides
lump-sum refunds of $300 for single taxpayers, $500 for single parents, and $600
for married taxpayers this year. Finally, it repeals the personal
exemption (PEP) and itemized deductions (Pease) phase-outs beginning in
2006.
Adoption Tax Credit
The conference report increases the adoption tax credit for families who adopt special needs children from $6,000 to $10,000. The credit for families who adopt non-special needs children is increased from $5,000 to $10,000 and extended permanently. The legislation increases the income cap at which the credit begins to phase out from $75,000 to $150,000. Finally, the credit applies against the alternative minimum tax. The exclusion for employer-provided adoption assistance is increased and extended in a comparable manner.
Child Tax Credit
The conference report to H.R. 1836 doubles the current $500 child tax credit to $1,000 per child by 2010 and applies the credit to the AMT. This increase is phased in over ten years beginning January 1, 2001, and retains the current law’s phase out (which begins at $110,000 for married couples). After 2004, the credit is refundable up to 15 percent of earned income in excess of $10,000 or present law.
Marriage Penalty Relief
The conference report to H.R. 1836 increases the 15 percent tax bracket for married couples who file jointly to twice that of single taxpayers beginning in 2005. This will be phased in over four years, providing $32.7 billion in tax relief over 10 years. The measure also increases the standard deduction for married couples to twice that of single taxpayers beginning in 2005 (phased in over five years).
Estate Tax Repeal
The conference report to H.R.
1836 phases in a repeal of estate and generation-skipping taxes. Prior to full
repeal in 2010, the estate tax will be reduced as follows: in 2002, the 55
percent and 53 percent tax rates and the 5 percent surtax are repealed, in 2003,
the highest rate will be 49 percent. Each year thereafter, these rates are
reduced by 1 percentage point per year from 2004 through 2006 and in 2007 the
highest rate will be 45 percent. Additionally, the state death tax credit
rates will be reduced in 2002-2004, and repealed in 2005.
Beginning in 2002, the unified
credit (currently applied to the first $675,000 of property) will be increased
to $1 million in 2002 and 2003, $1.5 million in 2004-2005, $2 million in 2006
through 2008, and $3.5 million in 2009 (lifetime gift exclusion remains at $1
million). After repeal of the estate tax, heirs will inherit assets with
the decedent’s basis (not in excess of fair market value), except that up to
$3 million of basis could be added to assets left to a surviving spouse and
$1.3 million of basis could be added to assets left to any heirs, resulting
in a continuation of date of death value basis for the vast majority of
estates. Certain restrictions apply to the “step up” in basis rules to
prevent taxpayers from engaging in dubious transactions to avoid income taxes.
The measure expands
conservation easements by eliminating the distance requirements. The
measure will also clarify that the date for determining easement compliance will
be the date on which the donation was made.
The conference report also
expands the definition of “closely-held” business for purposes of estate tax
installment payment rules. This change allows larger family businesses
(e.g., those with up to 45 shareholders or partners) to defer estate tax
payments over a 14 year period. Additional expansion of the estate
installment payment rules are made for holding companies and qualified lending
and finance businesses.
Generation-skipping transfer taxes (taxes assessed on gifts/inheritances that “skip” a generation, i.e. go to a grandchild) will be phased out within 10 years. This provision will also simplify portions of the generation skipping transfer tax rules prior to repeal.
Retirement Savings
The conference report provides tax relief to help
Americans save for retirement by making it easier for small businesses to offer
retirement plans, allowing workers to save more, addressing the needs of an
increasingly mobile workforce through portability and other changes, making
pensions more secure, and cutting the red tape that has hamstrung employers who
want to establish pension plans for their employees.
The current IRA contribution
limit of $2,000 a year is increased to $5,000. This increase is phased in, over
six years beginning in 2002 and ending in 2008 at which time the contribution
limit will be $5,000 a year. Additionally, the contribution limits are
indexed to inflation (the current $2,000 contribution limit has not been
increased since 1981). Additionally,
the measure provides a non-refundable credit to low- and middle-income savers
contingent upon income levels and is equal to 50 percent of contributions up to
$2,000.
Finally, the package permits: (1) increased contribution and benefit limits in
tax-favored retirement plans; (2) $5,000 salary reduction "catch
up" contributions to 401(k) plans for workers age 50 and over; (3)
faster vesting for employer matching contributions;(4) increased portability of
retirement plan assets making it easier for employees to roll over assets when
they change jobs; (5) a simplified pension system to encourage small businesses
to offer pension plans; and (6) phased-in increases in the limit on salary
reduction contributions to 401(k) plans—reaching $15,000 in 2006.
Education savings
The conference report raises the amount that can be contributed to an education savings account (ESAs) from $500 to $2,000 and may be used on K-12 expenses, makes distributions from pre-paid college savings plans and tuition plans tax-free, and provides above-the-line deductions for higher education expenses. It permanently extends the exclusion for employer provided educational assistance and extends the exclusion to include graduate as well as under-graduate programs. The measure also eliminates the 60 months limitation on the deductibility of student loan interest and increases the income phase out rages for this deductibility.
It provides tax-free treatment of certain scholarship programs, increases the arbitrage rebate exception for governmental bonds used to finance qualified school construction from $10 million to $15 million, and provides for the issuance of tax-exempt private activity bonds for qualified education facilities with annual state volume caps the greater of $10 per resident or $5 million for the state.
Alternative Minimum Tax
The conference report adjusts (and temporarily increases the exemption amount by $2,000 for single individuals and $4,000 for couples) the alternative minimum tax (AMT) to prevent taxpayers from losing the benefits of the tax reductions in the measure.
Miscellaneous Provisions
The conference report (1) delays corporate estimated tax payments due on September 15, 2001, to October 1, 2001, and delay a percentage of corporate estimated tax payments due on September 15, 2004, to October 1, 2004; (2) authorizes the postponing of certain tax deadlines due to disaster; (3) provides a 25 percent child care credit for employer provided care and 10 percent for child care resources; (4) excludes payments to Holocaust survivors from gross income (for income tax purposes); and (5) provides a 35 percent dependent care tax credit and increases the phase-out in 2003.
Legislative History
H.R. 1836 was introduced by Mr. Thomas on May 15, 2001. H.R. 1836 passed the House by a vote of 230 - 197 on May 16, 2001. The Senate passed an amended version of H.R. 1836 on May 23, 2001.
This document is not necessarily endorsed by the Almanac of Policy Issues. It is being preserved in the Policy Archive for historic reasons.