Sunset and the Economic Growth and Tax Relief Reconciliation Act of 2001.

• Author: Jablow, Benjamin A.
• Position: Tax Law

On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. L. 107-16) (the "tax act") that provided many changes to the Internal Revenue Code. (1) This article will address the sunset provisions, new income tax rate reductions, marriage penalty relief, and retirement provisions of the tax act.

Sunset Provisions

Following the 2000 elections, both houses of Congress and the White House were controlled by the Republicans. The Senate was evenly divided with 50 Republican senators and 50 Democratic senators. In drafting the tax act, Congress was aware of this political climate and the constraints of [section] 313 of the Congressional Budget Act of 1974, (2) which is commonly known as the "Byrd rule."

The Byrd rule provides that a senator may raise a point of order against extraneous provisions of a reconciliation bill on the Senate floor. (3) There are six different items (4) that are deemed extraneous provisions by the Byrd rule, including any provision that would increase net outlays or decrease revenues for a fiscal year beyond those covered by the reconciliation measure. If the point of order is sustained by the presiding officer of the Senate, then the extraneous provision will be stricken unless three-fifths of the senators vote to waive the Byrd rule. (5) The Senate passed the tax act by a vote of 58-33. Congress choose to make the tax act subject to the Byrd rule in order to avoid a confrontation in the Senate. The effect of the Byrd rule was to require that the tax act contain sunset provisions. Therefore, the changes which were made by the tax act will disappear as of January 1, 2011, unless new legislation is enacted that either extends these provisions or permanently adds these provisions to the Internal Revenue Code.

Income Tax Rate Reduction

Prior to the enactment of the tax act, individuals were subject to five separate tax rate brackets: 15, 28, 31, 36, and 39.6 percent.

The tax act created a new 10 percent bracket and phased in a reduction of the 28, 31, 36, and 39.6 percent brackets over a five-year period. The table at the bottom of this page illustrates the new tax rate brackets and when they are effective. The 10 percent and 15 percent tax rate brackets remain unchanged. In order to reduce the immediate fiscal impact on the federal budget, Congress back-end-loaded the phase-in of the lower income tax rate brackets for the 28, 31, 36, and 39.6 percent tax brackets.

Marriage Penalty Relief

The tax brackets and standard deductions contained in the Internal Revenue Code are based upon the taxpayer's filing status. Taxpayers (6) that are affected by the marriage relief provisions generally fall into two categories: single taxpayers and married individuals filing joint returns. The tables beginning on...