What Is EGTRRA?:
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was enacted to help stimulate the economy and restore confidence after 9/11. It was designed to expire after 10 years. It
will save taxpayers (thereby decreasing government revenues) by $1.35 trillion over that 10-year period. The Urban Insitute says the tax cuts benefit families with children, and those with incomes
over $200,000, the most.
Specifically, EGTRRA:
- Reduced income tax rates for most taxpayers by a few points.
- Created a new, retroactive 10% tax bracket, which resulted in refund checks being mailed to most taxpayers.
- Increased tax credits for those with children.
- Eliminated the “marriage penalty” by making exemptions for married couples equivalent to what they would have had if they were single.
- Provided greater tax deductions for education expenses and savings.
- Increased the amount of tax-deductible contributions taxpayers could make to their IRA accounts.
- Repealed estate and gift taxes.
How Does EGTRRA Affect the Economy?:
EGTRRA initially helped the economy by stimulating spending during the recessionary period of
2001. It also has incentives for taxpayers to save more.
However, EGTRRA hurts the economy by dramatically decreasing public saving. Reduced governement receipts have increased each year’s annual deficit, and thereby the U.S. debt. This will ultimately cause a slowdown in the U.S. economy when foreign governments begin to call in their loans.
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.
