What Was Public Law 107-16 (EGTRRA)?
Examine Public Law 107-16, the 2001 act that broadly altered the tax code and whose complex legislative journey shaped its lasting impact on U.S. tax policy.
In mid-2001, Congress passed Public Law 107-16, significant legislation that enacted one of the largest tax cuts in two decades. Officially titled the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the law introduced widespread changes to the U.S. tax code to stimulate economic activity through broad-based tax relief.
The scope of EGTRRA was extensive, implementing phased-in reductions across individual income tax rates, expanding tax benefits for families, and increasing incentives for retirement and education savings. The law also set in motion a gradual, temporary repeal of the federal estate tax. Its provisions were introduced incrementally over the following decade.
Key Tax Relief Provisions for Individuals and Families
A central component of EGTRRA was the reduction of individual income tax rates. The law introduced a new 10% tax bracket for a portion of income previously taxed at a higher rate. This bracket applies to the first $23,200 of taxable income for married couples filing jointly and the first $11,600 for single filers.
Subsequent legislation has further modified the tax brackets. The current federal income tax rates are:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
The act also addressed the “marriage penalty,” where a married couple’s tax liability could be higher than if they filed as two single individuals. EGTRRA increased the standard deduction for married couples filing jointly to double the amount for a single filer. This principle remains in effect, with the 2024 standard deduction set at $29,200 for married couples and $14,600 for single filers.
EGTRRA also expanded tax benefits for families with children through changes to the Child Tax Credit. The law doubled the credit and made it partially refundable, allowing more low-income families to benefit. Today, the Child Tax Credit is $2,000 per qualifying child, with up to $1,700 available as a refundable cash payment through the Additional Child Tax Credit for families with low or no tax liability.
Enhancements to Retirement and Education Savings
A focus of EGTRRA was to encourage saving for retirement. The law increased annual contribution limits for various retirement accounts, such as 401(k)s, where the maximum employee contribution is now $23,000.
Contribution limits for Individual Retirement Accounts (IRAs) were also increased. The current maximum annual contribution to a Traditional or Roth IRA is $7,000.
A notable innovation within EGTRRA was the creation of “catch-up contributions.” This provision allows individuals aged 50 and over to make additional contributions to their retirement accounts above the standard annual limits. For employer-sponsored plans like 401(k)s, the catch-up amount is $7,500, and for IRAs, it is $1,000.
The law also enhanced education savings vehicles like 529 plans, making distributions federally tax-free when used for qualified higher education expenses. The use of 529 plans has since expanded to allow tax-free distributions of up to $10,000 per year for K-12 tuition. Unused funds in a 529 plan can also be rolled over to a Roth IRA for the beneficiary, up to a lifetime limit of $35,000.
Coverdell Education Savings Accounts (ESAs) were also improved. The annual contribution limit for a Coverdell ESA was increased to $2,000 per beneficiary, and the definition of qualified expenses was expanded to include costs for elementary and secondary school.
Significant Modifications to the Estate Tax
EGTRRA implemented a gradual, multi-year phase-out of the federal estate tax. This involved progressively increasing the estate tax exemption amount while reducing the top tax rate, which culminated in a full, temporary repeal of the tax for 2010.
Subsequent legislation made the tax permanent but with different rates and exemptions. For 2024, the federal estate tax exemption is $13.61 million per individual. The top tax rate on estates valued above this exemption is 40%.
The Sunset Provision and Legislative Permanence
A characteristic of EGTRRA was its “sunset provision,” a clause causing a law to expire on a future date unless Congress acts. This provision stipulated that all of EGTRRA’s tax changes would expire on December 31, 2010. The sunset provision was a procedural tool used to comply with Senate budget rules that constrain legislation projected to increase the federal deficit beyond a ten-year window.
As the expiration date approached, Congress passed legislation to extend and later make permanent many core EGTRRA provisions, often in a modified form. The American Taxpayer Relief Act of 2012 (ATRA) and the Tax Cuts and Jobs Act of 2017 (TCJA) are two laws that shaped the current tax landscape based on EGTRRA’s foundation.
Many of EGTRRA’s policies, such as the 10% income tax bracket, the higher Child Tax Credit, and marriage penalty relief, were retained and updated by later legislation. However, the broad individual income tax cuts and the higher estate tax exemption enacted under the TCJA are temporary and scheduled to expire at the end of 2025. This sets the stage for future congressional action to determine the long-term structure of the U.S. tax code.