Jobs and Growth Tax Relief Reconciliation Act: Provisions Expiring in 2004

CRS Report for Congress
Jobs and Growth Tax Relief Reconciliation
Act: Provisions Expiring in 2004
Gregg Esenwein
Specialist in Public Finance
Government and Finance Division
Summary
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-
27) accelerated the implementation of certain tax reductions that were originally enacted
as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA;
P.L. 107-16). The 2003 act reduced marginal income tax rates effective through 2010
and reduced taxes on dividend and capital gains income effective through the end of

2008.

Several of these provisions will expire at the end of 2004, including the increase
in the child tax credit, the expansion of the 10% tax bracket, the expansion of the 15%
tax bracket and standard deduction for joint returns, the increase in the alternative
minimum tax (AMT) exemption, and the tax incentives for business.
During this session, Congress faces the issue of whether to extend and/or make
permanent these expiring tax provisions. To date, the House has passed four major tax
bills. H.R. 4181 would extend and make permanent marriage tax penalty relief; H.R.
4275 would extend and make permanent the 10% tax bracket; H.R. 4359 would extend
and make permanent the increase in the child tax credit; and H.R. 4227 would extend
the increase in the AMT exemption through 2005. These changes would reduce revenue
by $568 billion over the FY2005-FY2014 period. If the increase in the AMT exemption
were made permanent, then the total cost over the period could exceed $1 trillion.
Congress is currently considering going to conference on a child tax credit
refundability bill (H.R. 1308) that was passed last year, and using the conference
agreement as a vehicle for extending these four JGTRRA tax provisions. This report
will be updated as legislative action warrants.
Child Tax Credit
In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA)
increased the child tax credit from $500 to $1,000, with the increase phased-in over the

2001 through 2010 time period. In 2001 and 2002, the credit was $600. For 2003 and

Congressional Research Service ˜ The Library of Congress

2004, the credit was also scheduled to be $600. For 2005 through 2008, the credit is
scheduled to be $700. The credit is scheduled to be $800 in 2009 and $1,000 in 2010.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) increased
the child tax credit to $1,000 for tax years 2003 and 2004. In 2005, it is scheduled to
return to the levels prescribed by EGTRRA. Table 1 shows the amount of the child tax
credit scheduled under current law over the 2003 to 2010 time period.
Table 1. Child Tax Credit Under Current Law:
Calendar Years 2003 Through 2010
^T^e^m^p^{orary I}ⁿ^creas^e^s^{Scheduled Phas}^{e-in of I}ⁿ^creas^e^s
^{Under J}^G^T^RRA^{Under E}^G^T^RRA
2003 2004 2005 2006 2007 2008 2009 2010
$1,000 $1,000 $700 $700 $700 $700 $800 $1,000
Ten-Percent Income Tax Bracket
Effective in 2001, EGTRRA established a new 10% income tax bracket for a portion
of taxable income that had been taxed at the 15% tax rate. The 10% tax rate was
applicable to the first $12,000 of taxable income on joint returns, the first $6,000 of
taxable income on single returns, and the first $10,000 of taxable income on head of
household returns. In 2008, these 10% bracket thresholds were scheduled to increase to
$14,000 for joint returns and $7,000 for single returns. (The 10% tax rate threshold for
head of household returns would remain unchanged.)
JGTRRA accelerated the expansion of the threshold for the 10% tax bracket. Under
JGTRRA, for 2003 and 2004, the 10% tax rate is applicable to the first $14,000 of taxable
income on joint returns and the first $7,000 of taxable income on single returns. In 2005,
the 10% tax bracket thresholds revert to the levels specified by EGTRRA.
Table 2 presents the tax thresholds for the 10% tax bracket under EGTRRA and
JGTRRA.

Table 2. Ten-Percent Income Tax Bracket Under EGTRRA and
JGTRRA: Calendar Years 2001 Through 2008
Amounts SpecifiedAmounts SpecifiedAmounts Specified
By EGTRRABy JGTRRABy EGTRRA
2001200220032004*2005 - 20072008
J oint $12,000 $12,000 $14,000 $14,300 $12,000 $14,000
Single $6,000 $6,000 $7,000 $7,150 $6,000 $7,000
^*^In^creas^{e i}ⁿ^t^h^res^h^ol^ds^f^o^{r 2004 repres}^en^t^sⁱⁿ^dex^a^tⁱ^oⁿ^f^o^{r i}ⁿ^f^l^atⁱ^oⁿ^.
Fifteen-Percent Tax Bracket and Standard Deduction
for Joint Returns
EGTRRA increased the standard deduction and the width of the 15% tax bracket for
joint returns to twice the amount applicable to single returns. These changes were to be
phased-in over the period 2005 through 2009.
JGTRRA increased the standard deduction and 15% tax bracket for joint returns to
twice the size applicable to single returns, effective for tax years 2003 and 2004. In 2005,
the joint standard deduction and width of the 15% tax bracket will revert to the levels
specified under EGTRRA.
The JGTRRA and EGTRRA changes to the 15% tax bracket for joint returns are
shown in Table 3 and the changes to the standard deduction for joint returns are shown
in Table 4.
Table 3. End Point of the 15% Tax Bracket for Joint Returns
as a Percentage of the End Point of the
15% Tax Bracket for Single Returns
JGTRRA ProvisionsEGTRRA Provisions
2003 2004 2005 2006 2007 2008

200% 200% 180% 187% 193% 200%

Table 4. Standard Deduction for Joint Returns as a Percentage
of the Standard Deduction for Single Returns
JGTRRA ProvisionsEGTRRA Provisions
2003 2004 2005 2006 2007 2008 2009

200% 200% 174% 184% 187% 190% 200%

Alternative Minimum Tax (AMT) Exemption
EGTRRA increased the basic AMT exemption amount from $45,000 to $49,000 for
joint returns, and from $33,750 to $35,750 for unmarried individuals. These increases
were to have been in effect for tax years 2001 through 2004, before reverting to their
previous levels.
JGTRRA increased the AMT exemption amount to $58,000 for joint returns and to
$40,250 for unmarried taxpayers. These increases are in effect for tax years 2003 and

2004.

Table 5 presents the AMT exemption amounts for calendar years 2000 through

2005.

Table 5. Alternative Minimum Tax Exemption:
2000 Through 2005
EGTRRA ChangesJGTRRA Changes
Calendar Year200020012002200320042005
J oint $45,000 $49,000 $49,000 $58,000 $58,000 $45,000
Single $33,750 $35,750 $35,750 $40,250 $40,250 $33,750
Investment Incentives for Business
In addition to the changes affecting individual taxpayers, JGTRRA contained two
temporary provisions aimed at stimulating business investment. One provision was an
additional first-year depreciation deduction equal to 50% of the basis of qualified
property. To qualify for this bonus depreciation deduction, the property had to be
acquired after May 5, 2003 and before January 1, 2005.
The other temporary business incentive increased the maximum amount that can be
deducted under section 179 expensing from $25,000 to $100,000. It also increased, from
$200,000 to $400,000, the point at which the expensing deduction is phased-out. The
dollar amounts of both the maximum deduction and the phaseout threshold are indexed
for inflation after tax year 2003. This provision is in effect for property placed in service
during tax years 2003, 2004, and 2005.¹

¹ For more information, see CRS Report RL32034, The Jobs and Growth Tax Relief
Reconciliation Act of 2003 and Business Investment, by Gary Guenther. Also see CRS Report
RL31852, Small Business Expensing Allowance Under the Jobs and Growth Tax Relief
Reconciliation Act of 2003: Changes and Likely Economic Effects, by Gary Guenther.

Revenue Consequences of Extending the
Expiring JGTRRA Provisions²
Table 6 provides Congressional Budget Office (CBO) and Joint Tax Committee
(JCT) estimates of the possible revenue effects of extending the expiring JGTRRA tax
provisions.
The estimated revenue losses indicate that extending the expiring JGTRRA
provisions could cost more than $630 billion during the FY2005 through FY2010 period.
Revenue losses of this magnitude represent an increase of well over 50% in CBO’s
cumulative baseline deficit projection for the same period.
The most expensive of these provisions, accounting for almost half of the total
revenue loss, would be the extension of the 50% bonus depreciation deduction.
Maintaining the increase in the alternative minimum tax exemption would also be
expensive, reducing revenue by approximately $181 billion over the period.
The revenue estimates of extending the expiring JGTRRA provisions contained in
this table will be updated as new data become available.
Table 6. Estimates of the Revenue Effects of Extending
Certain Expiring JGTRRA Tax Provisions, FY2005 - FY2010
(Billions of Dollars)
2005 2006 2007 2008 2009 2010 Tot a l ,2005-2010
Child Tax Credit -2.6-13.2-13.2-13.2-12.4-6.9-61.5
10% Income Tax Bracket-4.3-6.4-6.8-4.3-3.2-3.3-28.3
15% Tax Bracket/ Standard -5.4-5.4-3.1-1.5-0.3 — -15.7
Deduction for Joint Returns
Alternative Minimum Tax-7.1-20.3-26.8-34.2-42.8-50.3- 181.5
50% Bonus Depreciation-41.4-71.1-66.2-57.5-48.4-39.8- 324.4
Section 179 Expensing — -3.8-6.6-5.0-4.0-3.4-22.8
Total All Provisions FY2005 through FY2010- 634.2
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² For more information on the revenue costs of extending the child tax credit, the 10% income
tax bracket, marriage tax penalty relief, and AMT relief, see CRS Report RS21863, Recent House
Legislation Extending Selected Provisions of the 2001 and 2003 Tax Cuts, by Gregg Esenwein.