Extending the 2001, 2003, and 2004 Tax Cuts

Publication Date: November 2005

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

The Economic Growth and Tax Relief Reconciliation Act of 2001 reduced marginal income tax rates, provided marriage tax penalty relief, provided temporary relief from the alternative minimum tax (AMT), and increased the child tax credit. All of the act's provisions are scheduled to sunset (revert to prior law levels) at the end of 2010. The Jobs and Growth Tax Relief Reconciliation Act of 2003 accelerated the implementation of certain tax reductions originally enacted in the 2001 act. The 2003 act also reduced the tax rate on dividend and long-term capital gains income. The dividend and capital gains tax relief is scheduled to expire after 2008. The Working Family Tax Relief Act of 2004, extended many of the tax provisions scheduled to expire at the end of 2004 (it did not, however, extend the capital gains/dividend tax reductions). The 2004 tax reductions, however, are still scheduled to sunset after 2010 as per the original 2001 legislation required.

Since all of the tax reductions expire at some point in the future, Congress faces the issue of whether to extend and/or make the reductions permanent. The AMT relief expires at the end of 2006 and the capital gains/dividend tax cuts expire in 2008. Some have suggested extending the AMT tax provisions and the capital gains/dividend tax reductions under the tax reduction provisions contained in the 2006 budget resolution.

The conference agreement on the 2006 budget resolution, H.Con.Res. 95, was approved by both chambers on April 28, 2005, and contained $106 billion in tax relief over the next five years, approximately $70 billion of which would be protected through the reconciliation process. As part of reconciliation, on November 18, the Senate approved the Tax Relief Act of 2005 (S. 2020). This bill would, among other things, extend AMT tax relief and the deduction for state and local taxes through 2006. On November 15, the Ways and Means Committee approved H.R. 4297 which, among other things, would provide a one-year extension for both the deduction of state/local general sales taxes and the treatment of nonrefundable personal tax credits under the AMT. It would also extend the capital gains/dividend tax reductions for two years.

This report will be updated to reflect legislative activity.