Economic Growth and Tax Relief Reconciliation Act of 2001 Summary

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was signed into law by President George W. Bush during a period of projected federal budget surpluses. The act’s objective was to reduce the tax burden on Americans to stimulate economic activity.

The act introduced a package of tax reductions for individuals, families, and estates, phased in over ten years. Due to a “sunset provision,” these changes were temporary and expired at the end of 2010. The tax code has since been altered by other laws, primarily the Tax Cuts and Jobs Act of 2017 (TCJA), and many of the TCJA’s changes are scheduled to expire after 2025.

Individual Income Tax Reductions

EGTRRA restructured individual income tax rates by creating a new 10% tax bracket for income previously taxed at 15%. The act also scheduled gradual reductions for the higher marginal income tax rates.

These specific rates are no longer in effect. For the 2025 tax year, the federal income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Family and Education Tax Relief

The 2001 act included provisions providing tax relief to families with children and those paying for higher education.

Marriage Penalty Reduction

The act worked to mitigate the “marriage penalty,” where a married couple’s tax liability could be higher than if they filed as two single individuals. EGTRRA addressed this by increasing the standard deduction for married couples filing jointly to double that of single filers, a principle carried forward in later tax law.

Child Tax Credit Expansion

The act enhanced the Child Tax Credit for parents with qualifying dependent children, increasing it to $1,000 per child. The amount has been changed by later laws. For the 2025 tax year, the Child Tax Credit is $2,000 per qualifying child, with up to $1,700 of that amount being refundable for eligible families.

Education Expense Deductions

EGTRRA introduced an above-the-line deduction for qualified tuition and related expenses to make higher education more affordable. This deduction expired at the end of 2020. Taxpayers may still offset higher education costs through other benefits, such as the American Opportunity Tax Credit or the Lifetime Learning Credit.

Enhancements to Retirement Savings

EGTRRA introduced changes to encourage retirement savings, and later legislation has built upon these reforms. The act increased contribution limits for IRAs and employer-sponsored plans like 401(k)s and introduced “catch-up” contributions for individuals aged 50 and over.

For 2025, these limits are:

• Traditional or Roth IRA Contribution Limit: $7,000
• 401(k) Contribution Limit: $23,500
• IRA Catch-up Contribution (age 50+): An additional $1,000
• 401(k) Catch-up Contribution (age 50+): An additional $7,500
• Higher Catch-up Contribution (ages 60-63): An additional $11,250 for certain retirement plans

Estate and Gift Tax Modifications

The 2001 tax act implemented a plan to gradually reduce and repeal the federal estate tax over a decade. This was done by increasing the estate tax exemption and decreasing the top tax rate each year, leading to a full repeal for the 2010 calendar year.

The estate tax was reinstated in 2011. Under current law, the federal estate tax has a top rate of 40%. For 2025, the federal estate tax exemption is $13.99 million per individual.

While the estate tax was set for a temporary repeal, the gift tax, which applies to wealth transfers made during a person’s lifetime, was not. The gift tax was modified by the act but remained in effect.

The Sunset Provision

A defining element of EGTRRA was its “sunset provision.” This clause stipulated that all tax changes in the act would automatically expire on December 31, 2010. Without new legislation, the tax code would have reverted to its pre-EGTRRA state, making the tax cuts temporary by design.

This provision was a consequence of the legislative process used to pass the bill. The act was passed using reconciliation, a budgetary process allowing for expedited consideration in the Senate. The “Byrd Rule,” a Senate constraint, generally prohibits reconciliation bills from increasing the federal deficit beyond a specific budget window, which was ten years.

To comply with this rule, the sunset clause was added to make the tax cuts temporary, limiting their long-term budgetary impact on paper. This strategy ensured Congress would need to address the expiring provisions, setting the stage for future tax policy debates.