Order Code RL30973
CRS Report for Congress
Received through the CRS Web
2001 Tax Cut:
Description, Analysis,
and Background
Updated April 12, 2002
David L. Brumbaugh, Jane G. Gravelle,
Steven Maguire, and Louis Alan Talley
Government and Finance Division
Bob Lyke
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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2001 Tax Cut: Description, Analysis, and Background
Summary
A major tax cut, H.R. 1836, was enacted in June 2001, but contained sunsetted
provisions. The House will consider, the week of April 15, making those tax
provisions permanent. This report summarizes the provisions of the bill, analyzes
effects, and considers the development of the legislation.
During the first half of 2001, tax cuts were a principal focus of policymakers.
In February, President Bush sent Congress the outlines of a proposal to cut taxes by
an estimated $1.6 trillion over 10 years; the proposal is based on a plan the President
set forth during the 2000 presidential campaign. The principal elements of the plan
were a cut in marginal individual income tax rates; a tax cut for many married couples;
an increased child credit; elimination of the estate and gift tax; a permanent research
and experimentation tax credit; a charitable contribution deduction for non-itemizers;
and several tax benefits for health care and education.
In March, tax cuts similar to the President’s proposal began moving through the
House of Representatives. On March 8, the House approved H.R. 3, containing a cut
in marginal tax rates; on March 29, the House approved H.R. 6, containing tax cuts
for married couples and an increase in the child credit; and on April 4, the House
approved H.R. 8, which would phase out the estate and gift tax. On May 2, the
House approved H.R. 10, containing tax reductions related to pensions and
retirement. On May 15, the Senate Finance Committee approved an omnibus bill
including elements of all of these proposals, plus education tax benefits. The bill was
reported as an amended version of H.R. 1836, the Economic Growth and Tax Relief
Reconciliation Act of 2001 that was passed by the House on May 16; the bill was
approved by the Senate with further amendments on May 23.
The principal differences between the House, Senate, and Administration plans
were a larger tax-rate cut in the President’s and House plans than in the Senate bill;
a retroactive component in the House and Senate bills designed to provide near-term
economic stimulus; effective dates in the Senate bill that were generally somewhat
later than those in the President’s proposal and the House bills; pension provisions in
the House and Senate plans, but not in the President’s; and health provisions in the
President’s plan but generally not in the House or Senate proposals.
On May 26, the House and Senate both approved a conference version of H.R.
1836. The bill’s reduction in marginal individual income tax rates is smaller than
proposed by the House or the President and larger than proposed by the Senate, but
is closer to the Senate bill than the other proposals. Beyond the rate cuts, the bill’s
major elements are: tax cuts for married couples, phase-out of the estate and gift tax,
an increase in the child tax credit, more generous individual retirement account (IRA)
and pension provisions, tax benefits for education, and a number of other items.
President Bush signed the tax cut bill on June 7. It became P.L. 107-16, the
Economic Growth and Tax Relief Reconciliation Act of 2001.

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Contents
Revenue Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Distributional Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Side-by-Side Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

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2001 Tax Cut: Description, Analysis, and
Background
A major tax cut, H.R. 1836, was enacted in June 2001, but contained sunsetted
provisions. The House will consider, the week of April 15, making those tax
provisions permanent. This report summarizes the provisions of the bill, analyzes
effects, and considers the development of the legislation.
The broad shape of the President’s plan and the tax cuts passed by the House,
Senate, and Conference Committee are perhaps more marked by their similarities than
their differences. The centerpiece of each plan is a cut in the statutory marginal tax
rates that apply to individuals’ taxable incomes, although the precise details vary
among the proposals. Beyond the rate cuts, each phases out the estate tax; expands
the child tax credit; and provides tax cuts for two-earner married couples.
The details of the plans, however, are far from identical, as the side-by-side chart
that follows makes apparent. Some of the major differences are:
! a larger marginal individual tax-rate cut in the President’s and House-passed
plans than in the Senate bill (in this respect, the Conference bill follows the
Senate more closely than the other two plans);
! a retroactive component in the House, Senate, and Conference bills that is
designed to provide near-term economic stimulus;
! retention of the gift tax in the Senate and Conference bills, but not the
President’s plan or House-passed measure;
! pension provisions in the House, Senate, and Conference plans, but not the
President’s; health provisions in the President’s plan but not the House, Senate,
or Conference proposals; education provisions in the Conference, Senate and
President’s plans, but not the House; and extension of expiring tax provisions
in the President’s plan, but – with some exceptions – not the House, Senate,
or Conference bills;
! effective dates, “phase-in,” and “sunset” provisions that differ among the plans.
The tax cuts in the Conference Committee bill are scheduled to expire at the end
of calendar year 2010. This provision was included to ensure the bill’s compliance
with the “Byrd rule” applying to congressional consideration of budget legislation.

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CRS-2
Revenue Effects
The relative size of the respective tax cuts is difficult to gauge, for several
reasons. First, revenue estimates for the tax cuts that passed the House that are
consistent with the Senate and Conference bills and the President’s proposal are not
available; the House tax cuts were passed in several different bills, and revenue
estimates were calculated for each bill separately without taking into account the
impact of the other House-passed measures. Because the costs of the different tax
cuts interact, the estimates for the different House bills cannot be simply added and
compared with the President’s plan or the Senate bill, the estimates for which do take
into account interacting effects.
Another difficulty is posed by “phase-ins” – that is, each proposal contains
numerous provisions that become fully effective only over a number of years. Thus,
the total 10-year revenue loss estimates for the proposals differ, depending on how
rapidly the particular plan’s provisions are phased in. To illustrate, the President’s
plan is estimated to reduce revenue by $1,775.3 billion over 10 years ($1.8 trillion
after rounding), while the Senate bill’s revenue loss is estimated at $1,347.2 billion
($1.3 trillion). In part, the larger size of the President’s proposal is a result of its
more rapid phase-in of important elements such as its rate cuts and estate and gift tax
repeal.
An added issue in gauging the size of the Conference bill’s tax cut is its
scheduled expiration at the end of calendar year 2010. Because of the sunset
provision, the $1.3 trillion revenue loss estimated for the period FY2001 through
FY2011 is smaller than it would be if the tax cuts did not expire: FY2011 includes
part of calendar year 2011 when the tax cuts are scheduled to no longer apply. The
expiration provision, together with the phase in of important provisions also hampers
getting an idea of the long-run, annual impact of the bill. One important provision of
the bill – repeal of the estate tax – is not fully effective until calendar year 2010 and
due to lags in filing will not be fully reflected in revenue reductions until FY2011. A
solution to this might be to rely on the revenue estimate for FY2011. At the same
time however, revenue estimates for FY2011 reflect the impact of the bill’s general
sunset provisions and are therefore smaller than will likely result from the annual
impact of permanent changes in the tax code. The side-by-side comparison in this
report presents the Joint Tax Committee’s revenue estimates after each item for
FY2010 and the FY2001-FY2011 total.
How large are the tax cuts compared to the economy? The dollar value of
economic variables 10 years in the future is extremely uncertain, as are the actual
revenue reductions that will occur from the tax cuts. However, based on economic
projections by the Congressional Budget Office and the Joint Committee on
Taxation’s revenue estimates, the estimated revenue loss from the Conference
committee bill is 1.3% of gross domestic product (GDP) or 6.3% of the revenue
collections otherwise expected to occur.

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CRS-3
Distributional Effects
This analysis compares the distributional effects of the proposals, using estimates
made by a private group, Citizens for Tax Justice. This is the only organization that
has provided consistent estimates or provided the underlying information necessary
to calculate the tax as a percentage of income, a relative distribution measure, and that
also includes the impact of repealing the estate tax – an important element of the
proposals.
Two types of distributional measures are shown, one absolute (indicating the
total amount of dollars received by each income group) and the other relative
(measuring the tax cut as a percentage of income).1 The absolute measure indicates
that most of the tax cut is received by the highest income classes, and that benefits in
the President’s proposal (an early version) and the House proposal are more
concentrated in the higher classes than is the Senate proposal, while the conference
proposal falls in between. This effect occurs primarily because of differences in the
rate cuts, which are largest at higher income levels in the President’s proposal and the
House bills and smallest in the Senate proposal.
The tax cut as a percentage of income – the relative measure – provides
information about the effect on progressivity. Ideally, the percentage change in after
tax income should be used to show the degree to which changes in taxes make
incomes more or less even. Using taxes as a percentage of pre-tax income reduces
the percentage change at higher income levels, but nevertheless provides a reasonable
depiction of the distributional effects. While the tax cut is relatively even handed in
the middle income classes, the highest income individuals would receive much larger
tax cuts relative to income. This effect is in part due to the estate and gift tax repeal;
about half of the tax cut for the top 1% comes from the estate tax repeal. Without
that tax cut, the percentage change in taxes as a percent of income would be 2.79%
for the President’s and House plan, 1.79% for the Senate plan, and 2.57% for the
conference plans. All four measures, therefore, increase differentials in after-tax
income. The average tax cut as a percent of income (shown in the totals row for the
last four columns) indicates that, in the long run, the conference plan is the largest,
with an average cut of 2.43% of income.
Note that some measures of distribution compare the percentage change in tax
liability. These measures do not, however, provide information about progressivity
for two reasons. First, percentage changes in tax liability can be very large if initial
tax liability is small and they will differ substantially depending on what is chosen as
the base (e.g. income taxes, or all federal taxes). A proportional cut in an already
progressive tax will reduce progressivity (in the sense that incomes are distributed less
equally). For a cut in a progressive tax to be distributionally neutral, cuts must be
smaller at the top than at the bottom, but the extent of that difference depends on
existing progressivity.
1For more information on these different measures, see CRS Report RL30779, Across the
Board Tax Cuts: Economic Issues, by Jane G. Gravelle.

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CRS-4
Note also that, while the tax cuts at the top arise mostly from rate cuts, or
reductions in estate taxes, which benefit all taxpayers in those groups, most of the
middle class tax cut is directed towards particular groups: families with children and
married couples. Citizens for Tax Justice finds, for example, that in the President’s
plan, the average tax cut is $500, but the average tax cut for families with children is
$1,114, the average tax cut for single parents is $326, and the average tax cut for
singles is $283. Some of these differences reflect differences in average incomes;
however, the vast majority of single individuals with no children will receive no more
than $300 (the new 10% rate bracket), because there is no tax reduction in the 15%
rate bracket, and singles do not receive benefits focused on children or joint returns.
Table 1: Distributional Effects of the President’s Tax Plan, the House
Proposals (H.R. 3, H.R. 6, & H.R. 8), the Senate Proposal and the
Conference Proposal at 2001 Income Levels
Income
Class
Share of Cut
Percent of Income
Confer-
Confer-
President
House*
Senate
ence
President
House*
Senate
ence
Lowest 20% 0.8%
0.8%
1.0%
0.9%
0.51%
0.55%
0.70%
0.71%
Second 20% 3.5
4.0
5.7
5.3
1.03
1.18
1.77
1.82
Third 20%
8.4
9.1
8.9
8.5
1.48
1.60
1.63
1.74
Fourth 20% 15.7
15.3
14.7
14.5
1.69
1.64
1.65
1.82
Next 15%
18.9
19.0
24.8
23.7
1.56
1.58
2.14
2.29
Next 4%
7.8
6.7
9.8
9.5
1.12
0.96
1.48
1.59
Top 1%
45.0
45.0
35.0
37.6
4.88
4.87
3.97
4.76
Total
100.0
100.0
100.0
100.0
2.08
2.08
2.17
2.43
Source: Citizens for Tax Justice and CRS calculations based on their data.
*Reflects H.R. 3 (rate cuts), H.R. 6 (marriage penalty and child credit) and H.R. 8 (estate and gift
tax), but not H.R.10 (IRAs and pensions). H.R. 10 would make the size of cuts slightly larger, but
would probably not affect the distribution very much.
Side-by-Side Comparison
The following chart presents a side-by-side comparison of the principal
provisions of the President’s proposal and the House, Senate, and Conference
Committee bills. It is not intended to be comprehensive but does contain the main
features of each plan. The chart presents item-by-item revenue estimates prepared by
the Joint Committee on Taxation. As noted above, however, the estimates for the
House bills and other plans are not comparable. In addition, the itemized revenue
estimates for the House tax cuts cannot be aggregated.

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CRS-5
Current Law
President’s Proposal
House
Senate
Conference
Individual Income Tax Rates, Personal Exemptions, and Itemized Deductions
Tax rates applicable to
Phased-in reduction in
Phased-in reduction in
Phased-in reduction of
Phased in reduction of
individuals’ taxable income
individual income tax rates
individual income tax rates
individual income tax
individual income tax
are: 15%, 28%, 31%, 36%,
over the period 2002-6.
over the period 2002-6. (H.R.
rates, generally over the
rates over the period
and 39.6%.
3)
period 2002-7.
2001-6.
Rates would be: 10%, 15%,
Rates would be: 10%, 15%,
Rates would be: 10%,
Rates are: 10%, 15%,
25%, and 33%.
25%, and 33%.
15%, 25%, 28%, 33%, and
25%, 28%, 33%, and
36%.
35%.
No retroactivity.
The initial phase-in of the
lowest rate would begin
10% rate would apply
10% rate applies
retroactively; a 12% rate
retroactively to 2001.
retroactively to Jan.,
Estimated revenue loss:
would apply in calendar
2001. The phase in of
$118.9 billion in FY2010;
years 2001and 2002; 11%
Increases the income
other rate cuts begins
$877.2 billion over 10 years.
would apply in 2003-5; 10%
threshold at which
Jul. 1, 2001.
would apply thereafter.
itemized deductions begin
to be limited, effective in
Phases out the income
Estimated revenue loss:
2009.
limit on itemized
$121.7 billion in FY2010;
deductions over 2006-
$958.3 billion over 11 years.
Repeals the phase out of
10.
personal exemptions,
effective in 2009.
Phases out the
restriction on personal
Estimated revenue loss:
exemptions over 2006-
$104.9 billion in FY2010;
9.
$842.0 billion over 11
years.
Estimated revenue loss:
$118.5 in 2010; $874.9
billion over 11 years.

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CRS-6
Current Law
President’s Proposal
House
Senate
Conference
Married Couples
Tax rate brackets and
Provides a tax deduction to
Increases the standard
Phases in an increase in
Phases in an increase in
standard deduction provide
two-earner married couples
deduction for couples to
the standard deduction for
the standard deduction
marriage “bonuses” for
equal to 10% of the first
twice that of singles,
couples to twice that of
for couples to twice that
couples with disparate
$30,000 earned by the lower-
effective in 2002; broadens
singles; phase-in would
of singles; phase-in will
incomes and marriage
paid spouse up to a
the 15% rate bracket for
occur over 2006-10. Phases
occur over 2005-9.
“penalties” for couples with
maximum deduction of
couples to twice that of
in over 2006-10 a
Phases in over 2005-8 a
similar incomes. Earned
$3,000. Phased in over
singles, fully effective in
broadening of the 15%
broadening of the 15%
income tax credit (EITC) can
2002-2006.
2009; increases the EITC
rate bracket for couples to
rate bracket for couples
result in a marriage penalty.
earned income amount for
twice that of singles.
to twice that of singles.
Estimated revenue loss:
couples, effective in 2002;
Increases the phase-out
Phases in an increase in
$14.2 billion in FY2010;
increases the AMT
range of the EITC for
the phase-out range of
$102.7 over 10 years.
exemption amount for
couples, effective in 2002.
the EITC over 2002-8.
couples, effective in 2006.
Estimated revenue loss:
Estimated revenue loss:
Estimated revenue loss:
$10.3 billion in FY2010;
$9.2 billion in FY2010;
$36.4 billion in FY2010;
$72.2 billion over 10
$59.8 billion over 10
$223.3 billion over 10 years.
years.
years.
Child Tax Credit
$500 tax credit for each child
Increases the credit to
Increases the credit to $1,000
Increases the credit to
Increases the credit to
under 17. Phased out
$1,000. Increases the phase-
over the period 2001-2006,
$1,000 over the period
$1,000 over the period
beginning with incomes of
out threshold to $200,000 for
but retains current phase-out
2001-2011. Makes the
2001-2011. Makes the
$110,000 for couples and
couples and singles. Phased
threshold. Extends
credit refundable to the
credit refundable to the
$75,000 for singles. Credit
in over the period 2002-6.
refundability to families with
extent of 15% of earned
extent of 10% of
is refundable only for
less than 3 children. Credit
income in excess of
income over $10,000
families with three or more
Credit would offset the
would offset the AMT;
$10,000. Credit would
for 2001-4; 15% of
children. Refund reduced by
AMT; refund would not be
refund would not be reduced
offset the AMT; refund
income over $10,000,
AMT; after 2001 amount of
reduced by the AMT.
by the AMT.
would not be reduced by
indexed for inflation,
credit reduced by AMT.
the AMT.
for 2005 and thereafter.
Estimated revenue loss:
Estimated revenue loss:
$31.9 billion in FY2010;
$23.9 billion in FY2011;
Estimated revenue loss:
Credit offsets the AMT;
$210.7 billion over 10 years.
$175.9 billion over 11 years.
$25.4 billion in FY2010;
refund not reduced by
$193.0 billion over 11
the AMT.
years.
Estimated revenue loss:
$25.2 billion in
FY2010; $171.8 billion
over 11 years.

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CRS-7
Current Law
President’s Proposal
House
Senate
Conference
Estate and Gift Tax
Marginal tax rates ranging
The estate and gift tax would
The estate and gift tax would
The estate tax would be
The estate tax gradually
from 37% to 60% apply to
be phased out over the period
be phased out over the period
gradually repealed over the
repealed over the period
estates over 675,000; estates
2002-2009. All rates are
2002-2011(H.R. 8). The rate
period 2002-2011. Estate
2002-10. Rate
above the filing threshold
reduced rapidly during the
reductions are not as rapid as
and gift tax rates are
reductions are the same
may claim a credit equal to
phase out period, but not
in the president’s proposal,
reduced more gradually
as in the Senate bill.
the tax due on the threshold
below the capital gains tax
and the highest rate falls
under this proposal during
However, the
amount. The taxable
rate.
below the top income tax
phaseout than the other
applicable credit is
threshold is scheduled to
rate. H.R. 8 would also
two proposals. However,
increased more slowly
increase to $1 million by
change the unified credit to
the applicable credit is
than under the Senate
2006.
an exemption beginning in
gradually increased to $4
bill. In addition, the
2002.
million by 2010. A top gift
gift tax is retained at
tax rate of 40% would be
the top income tax rate
maintained after repeal of
of 35%.
the estate tax.
Assets transferred at death
The “step-up” in the basis of
Same basis rules as
Same basis rules as
receive a “stepped-up” basis.
assets would be limited to
Same basis rules as
President’s proposal and
President’s proposal
$1.3 million plus $3 million
President’s proposal.
House bill.
and House and Senate
for assets transferred to a
plans.
surviving spouse.
Estates may also claim a
The federal credit for state
The federal credit for state
The federal credit for
credit for state death taxes
death taxes would be reduced
The federal credit for state
death taxes would be
state death taxes is
ranging from .8% to 16% of
in proportion to the reduction
death taxes would be reduced
reduced over the 2002-
reduced over the 2002-
adjusted taxable estate value.
in estate and gift tax rates.
proportionately.
2004 period and replaced
2004 period and
with a deduction in 2005.
replaced with a
deduction in 2005.
Estimated revenue loss:
Estimated revenue loss:
Estimated revenue loss:
$73.4 billion in FY2010
Estimated revenue loss:
$22.6 billion in FY2010
$23.5 billion in FY2010
($78.9 billion in FY2011);
$35.0 billion in FY2010
($27.0 billion in FY2011);
($53.9 billion in
$305.9 billion over 10 years.
($51.8 in FY2011); $185.6
$134.4 billion over 10
FY2011); $138.0
billion over 10 years.
years.
billion over 11 years.

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CRS-8
Current Law
President’s Proposal
House
Senate
Conference
Individual Retirement Accounts (IRAs) and Pensions
IRAs
Individuals can contribute up
No change for IRAs
The dollar limit for IRA
The limit for IRA contrib-
The limit for IRA
to $2,000 annually to IRAs.
generally. See, however, the
contributions increased to
utions is increased to
contributions is
Contributions are deductible
changes for charitable
$5,000 over 2002-2004 and
$5,000 over 2002-2011
increased to $5,000
for persons not participating
contributions and for
is indexed afterwards.
and is indexed afterwards.
over 2002-8 and
in employer plans; income
education, below.
Estimated revenue loss for
Estimated revenue loss for
indexed thereafter.
limits apply to deductions by
IRA provision: $5.3 billion in
IRA provision: $3.3 billion
Estimated revenue loss
plan participants.
FY2010; $34.2 billion over
in FY2010; $17.7 billion
for IRA provision: $4.5
10 years.
over 10 years.
billion in FY2010;
$25.1 billion over 10
Pensions
years.
Tax on employer
No change.
Increases dollar limits on
Provisions similar to the
Provisions increasing
contributions to qualified
variety of retirement plans:
House bill, but with slower
dollar limits follow the
pension plans is generally
limits on contribs. to defined
phase-ins in some cases;
House bill.
deferred (postponed) until
benefit plans rise from $35K
the limit on contributions
distributed, conferring the
to $40K; limits on defined
to defined benefit plans
401(K) and similar
equivalent of a tax
benefit payments rise from
will not increase except for
plans can elected to be
exemption. The benefit is
$140K to $160K; limits on
inflation.
treated as Roth IRAs);
subject to limits, restrictions,
eligible compensation rise to
effective in 2006.
and regulations.
$200K; limits on 401(k) and
401(K) and similar plans
like plans rise to $15K;
could be treated as Roth
Follows the Senate in
limits on SIMPLEs rise to
IRAs (contributions not
allowing a credit for
$10K. Limits then indexed
deductible, payments not
IRA and 401(K)
for inflation. Other increases
taxable)
contributions,
in limits would also occur.
sunsetting in 2006.
Credit for contributions to
401(K) and similar plans
IRAs, 401(K) and similar
Numerous other
could be treated as Roth
plans aimed at lower
provisions (similar to
IRAs (contributions not
income persons; sunsets in
the House and Senate
deductible but payments not
2006.
provisions) relating to
taxable).
expanding portability,
Numerous other provisions
easing burdens of anti-
There are numerous other
(similar to the House
discrimination rules,
provisions relating to
provisions) relating to
and simplifying rules.
expanding portability, easing
expanding portability,
burdens of anti-
easing burdens of anti-
Estimated revenue loss
discrimination rules, and
discrimination rules, and
of pension provisions:
simplifying rules.
simplifying rules.
$2.2 billion in FY2010;
$24.5 billion over 10
Estimated revenue loss of
Estimated revenue loss of
years.
pension provisions: $2.5
pension provisions: $2.2
billion in FY2010; $17.4
billion in FY2010; $22.6
billion over 10 years.
billion over 10 years.

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CRS-9
Current Law
President’s Proposal
House
Senate
Conference
Charitable Contributions
Taxpayers who itemize their
Permits non-itemizers to
No House-passed provision.
Taxpayers can deduct the
No provisions.
deductions can deduct
deduct charitable
fair market value of self-
charitable contributions
contributions. (Phased in
created artworks.
subject to a limitation of 50%
over 2002-2006).
of adjusted gross income.
Effective upon enactment.
Non-itemizers are not
permitted an additional
Allows corporations
deduction for charitable
additional deduction
contributions.
(generally equal to one-
half ordinary income that
Withdrawals from IRAs are
Allows persons over 59 ½
would have been
generally included in taxable
tax-free withdrawals from
recognized from sale) for
income. Withdrawals before
IRAs for charitable
contributions of book
59 ½ are subject to an
contributions, beginning in
inventory to schools,
additional 10% tax.
2002.
libraries, and literacy
programs.
Corporations are permitted to
deduct charitable
Increases the corporate
contributions, subject to a
contribution limitation to
Effective upon enactment.
limit of 10% of net income.
15% of taxable income,
beginning in 2002.
For contributions of property,
taxpayers may deduct the fair
Estimated revenue loss:
market value of capital gain
$15.7 billion in FY2011;
property but for ordinary
$90.0 billion over 10 years.
income property – including
self-created artworks – can
generally only deduct their
basis in the property.

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CRS-10
Current Law
President’s Proposal
House
Senate
Conference
Education
Education IRAs
Authorizes tax-exempt
Allows accounts also to be
No provision.
Allows accounts also to be
Same as the Senate
savings accounts for qualified
used for qualified elementary
used for qualified
amendment with
higher education expenses.
and secondary education
elementary and secondary
several modifications.
Distributions are excluded
expenses, including for
education expenses,
Does not include
from income of beneficiary
private and religious schools
including private and
exclusion for employer
student.
(effective after 2001).
religious schools.
contributions.
Raises annual contribution
Limits annual contributions
limit to $1,000 in 2002,
Raises annual contribution
to $500 per beneficiary
$2,000 in 2003, $3,000 in
limit to $2,000.
2004, $4,000 in 2005, and
$5,000 in 2006 and
(Effective after 2001)
thereafter.
Extends exclusion to
employer contribution to
education IRA of
employee, spouse, or lineal
descendent, limited to
$500 per beneficiary.
Qualified Tuition Savings
Plans
Allows distributions from
No provision.
Allows distributions from
Same as the Senate
Allows qualified tuition
accounts to be excluded from
accounts to be excluded
amendment with
savings plans to be tax-
income of beneficiary
from income of beneficiary
several modifications.
exempt. Distributions from
student, subject to lifetime
student.
Imposes 10% penalty
accounts are taxable to
limit.
tax on distributions not
student under annuity rules.
Allows private higher
used for qualified
Allows private higher
educational institutions to
higher education
Plans must be established by
educational institutions to
establish prepaid tuition
expenses.
state governments.
establish prepaid tuition
savings plans under same
savings plans under same
rules.
rules.
(Effective after 2001
(Effective after 2001)
except for exclusion of
distributions from private
institution plans, after
2003)

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CRS-11
Current Law
President’s Proposal
House
Senate
Conference
Employer Education
Assistance
Extends current law through
No provision.
Extends limited exclusion
Same as Senate
Allows limited exclusion
Dec. 31, 2002.
to graduate level courses
amendment.
even if education is not job-
(effective after 2001).
related or prepares for new
career.
Makes exclusion
Does not cover graduate-level
permanent.
courses.
Expires Dec. 31, 2001.
Interest on Higher Education
Loans
Allows limited above-the-
No provision.
No provision.
Repeals restriction on
Same as Senate
line deduction for first 60
number of months on
amendment except does
months of interest payments.
interest payments.
not include optional tax
credit.
Raises income phase-out
ranges for eligibility.
(Both effective after 2001)
Allows optional tax credit
of up to $500 for first 60
months of interest
payments (effective after
2008).

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CRS-12
Current Law
President’s Proposal
House
Senate
Conference
Bonds for School Facilities
Interest on state or local
No provision.
Increases the arbitrage
Same as Senate
governmental bonds is tax-
rebate exception for small
amendment.
exempt. Issuers must rebate
issuers by $5 million
arbitrage earnings, with some
(effective after 2001)
exceptions.
Interest on private activity
Allows bonds issued by for-
Allows bonds issued by
bonds is taxable with some
profit entity pursuant to
for-profit entity pursuant to
exceptions, among them
partnership agreement with
partnership agreement
exempt facility bonds.
public schools to be
with public schools to be
classified as exempt facility
classified as exempt

bonds (effective after 2001).
facility bonds (effective
after 2001)
Deduction for Higher
Education Expenses
Not allowed except as
No provision.
No provision.
Allows optional above-the-
Same as Senate
business or professional
line deduction for tuition
amendment except
expense
and fees. Limited to
deduction limited to
$3,000 in 2002 and 2003
$4,000 in 2004 and
Allows tax credits for tuition
and to $5,000 in 2004 and
2005.
and fees: Hope Scholarship
2005.
(up to $1,500) and Lifetime
Learning (up to $1,000;
Allows higher income
$2,000 after 2002).
phase-out ranges for
eligibility than would
either tax credit.
(Effective after 2001 and
before 2006).

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CRS-13
Current Law
President’s Proposal
House
Senate
Conference
Deduction for Classroom
and Training Expenses
Allows deduction for
Allows “above-the-line”
No provision.
Allows above-the-line
No provision.
unreimbursed employee
deduction for non-itemizers
deduction up to $500 for
expenses, limited to
up to $400 for elementary
elementary and secondary
taxpayers who itemize and
and secondary school
school teachers and other
subject to 2% adjusted gross
teachers and other personnel
personnel who incur
income floor. Some training
who have classroom and
professional development
expenses may qualify for the
training expenses (effective
expenses related to their
Lifetime Learning Credit.
after 2001).
subject area.
Allows tax credit for 50%
of classroom material
expenses; limited to $250
each year.
Estimated reduction in
Estimated reduction in
Estimated reduction in
revenue of all education
revenue of all education
revenue of all education
provisions: $1.6 billion in
provisions: $3.6 billion in
provision: $3.1 billion
FY2010; $10.7 billion over
FY2010; $35.5 billion over
in FY2010; $29.4
10 years.
ten years.
billion over ten years.

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CRS-14
Current Law
President’s Proposal
House
Senate
Conference
Health and Long-Term Care
Tax Credit for Health
Insurance
Allows refundable tax credit
No provision.
No provision
No provision.
Allows deduction for
for purchase of health
unreimbursed medical
insurance for individuals not
expenses (including health
participating in employer-
insurance premiums), limited
sponsored or public
to taxpayers who itemize and
programs. Credit limited to
subject to
$1,000 per individual
7 ½ % adjusted gross
($2,000 per family) up to
income floor.
90% of premium (effective
after 2001; phased-in before
2003).
Flexible Spending Accounts
Allows FSAs to be funded on
Allows up to $500 in unused
No provision.
No provision.
No provision.
pre-tax basis. Balances
balances to be carried over to
unused at end of year are
next year, rolled over into
forfeited to employer.
qualified retirement plan or
medical savings account, or
distributed to employee
(effective after 2001).
Archer Medical Savings
Accounts
Allows tax-exempt MSAs for
Repeals termination date for
No provision.
No provision.
No provision.
self-employed or employees
new enrollees and cap on
of small employers with high
number of participants.
deductible insurance. New
Makes accounts generally
enrollments generally
available to anyone with high
prohibited after 2002.
deductible insurance and
increases contribution limits
(effective after 2001).
Personal Exemption for
Family Caregiver
Allows exemption if
Allows additional personal
No provision.
No provision.
No provision.
individual qualifies as a
exemption for family
dependent.
members needing long-term
care (effective after 2001).

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CRS-15
Current Law
President’s Proposal
House
Senate
Conference
Deduction for Long-term
Care Insurance
Allows deduction for
Allows above-the line
No provision.
No provision.
No provision.
unreimbursed medical
deduction for long-term care
expenses (including long-
insurance premiums
term care insurance
(effective after 2001 but
premiums), limited to
phased-in before 2007).
taxpayers who itemize and
subject to 7 ½ % adjusted
Estimated reduction in
gross income floor.
revenue: $13.5 billion in
FY2011; $100.4 billion over
10 years.
Health Insurance Deduction
for Self-Employed
If a taxpayer is not eligible to
No provision.
No provision.
Allows 100% deduction
No provision.
participate in an employer-
for health insurance
subsidized health plan, a
premium even if taxpayer
deduction is allowed for 60%
is eligible to participate
of premiums in 2001, 70% in
(but does not) in employer-
2002, and 100% in 2003 and
subsidized health plan.
thereafter.
Effective after 2001.
Estimated revenue cost:
$0.9 billion over 10 years.
Research and Experimentation (R&E) Tax Credit
A 20% tax credit applies to
The R&E credit would be
No provision.
The R&E credit would be
No provision.
qualified research expenses
made permanent; no change
made permanent. The
above a base amount linked
in rates.
alternative rates would be
to a firm’s research in the
increased to a range of 3%
past. An alternative, three-
Estimated revenue cost: $8.2
to 5%.
tiered credit is available with
billion in FY2010; $47.3
lower rates ranging from
billion over 10 years.
Estimated revenue cost:
2.65% to 3.75%. The credit
$8.3 billion in FY 2010;
is scheduled to expire after
$47.8 billion over 10
June 30, 2004.
years.

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CRS-16
Current Law
President’s Proposal
House
Senate
Conference
Adoption Tax Credit and Employer Adoption Assistance Programs
Taxpayers are allowed a tax
Provides that the adoption
Increases the adoption tax
Provides a $10,000 tax
The provisions of the
credit for qualified adoption
tax credit for children
credit to $10,000 for children
credit for taxpayers who
House and Senate bills
expenses. Adopted children
without special needs is to be
with or without special
adopt a child with special
were similar and
must be under age 18 or
made permanent (the special
needs. Increases the phase-
needs. A credit up to
generally retained. The
physically or mentally
needs adoption provision is
out for either the adoption
$10,000 is provided for
$10,000
incapable of caring for
already a permanent part of
credit or amounts received
qualified adoption
credit/exclusion for
themselves. There is no limit
the IRC). Increases the
from an employer adoption
expenses for all other
special needs children
on the number of children
credit to $8,500 for children
assistance program from
adoptions. Employer
without regard to
that may be adopted. The
with special needs and to
$75,000 to $150,000. The
adoption assistance
qualified adoption
credit is $6,000 for domestic
$7,500 for adoptions of non-
adoption credit would be
programs may provide up
expenses (under the
special needs children (and a
special needs children.
allowed against the
to $10,000 to employees
Senate amendment)
permanent part of the IRC).
alternative minimum tax.
who adopt special needs
was retained but is not
The credit amount is $5,000
Both the credit for non-
children and may
effective until 2003.
for all other adoptions (and
special needs children and
reimburse adoption
These amounts are not
will expire after December
the employer adoption
expenses for all other
available until the
31, 2001). The credit may be
program would be made a
children up to $10,000.
adoption is finalized.
carried forward 5 years. A
permanent part of the tax
Amounts received under an
Further, the agreement
phase-out of benefits occurs
code. Qualified expenses
employer program are not
provides a cost of living
for taxpayers with incomes
paid or incurred in taxable
includable in the
adjustment for inflation.
over $75,000. The credit
years beginning on or before
employee’s gross income.
The adoption tax credit
will be subject to the
December 31, 2001, would
The phase-out for both the
and employer adoption
alternative minimum tax
remain subject to current law
adoption credit or for
assistance program
limitations after 2001.
dollar limits.
amounts from employer
provisions are made a
Employers may offer an
programs is raised from
permanent part of the
adoption assistance program
$75,000 to $150,000. An
Internal Revenue Code
to employees that provides
adjustment for inflation is
(note, however, the year
reimbursements in a like
provided for both the credit
2010 sunset provisions
amount available under the
and employer
as described in the body
tax credit program. The
reimbursement for future
of this report).
employer adoption assistance
years. The credit would be
program expires after
allowed against the
Estimated revenue loss:
December 31, 2001.
alternative minimum tax..
$432 million in
FY2010; $3.135 billion
Estimated revenue cost:
over 11 years.
$432 million in FY2010;
$3.1 billion over 11 years.

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CRS-17
Current Law
President’s Proposal
House
Senate
Conference
Dependent Care Credit
A tax credit is allowed that is
No provision.
No provision.
The maximum credit rate
Same as Senate
generally equal to 30% of
is increased to 40% and
amendment except
qualified employment-related
the income threshold above
maximum credit is 35%
expenses for the care of a
which the credit is reduced
and income threshold
dependent. The rate is
is increased to $20,000.
above which there is
reduced (but not below 20%)
The limit on qualified
reduction is $15,000.
for increments of income
expenses is increased to
above $10,000. The amount
$3,000 for 1 dependent
of qualified expenses may
and to $6,000 for 2 or
not exceed $2,400 for 1
more dependents. The
dependent and $4,800 for 2
changes would be effective
Estimated revenue cost:
or more dependents.
beginning in 2003.
$0.9 billion in FY2010;
$7.6 billion over 10
Estimated revenue cost:
years.
$0.5 billion in FY2010;
$5.4 billion over 10 years.
Employer Child Care Tax Credit
Allows a deduction for
No provision.
No provision.
Allows a tax credit equal
Same as Senate
ordinary and necessary
to 25% of expenditures for
provision.
business expenses of
child care facilities and
assisting employees obtain
operating or contract costs
Estimated revenue cost:
child care. Expenditures for
of child care programs
$0.2 billion in FY2010;
child care facilities are
(10% for resource and
$1.4 billion over 10
capitalized and recovered
referral expenditures),
years.
over time through deduction
limited to $150,000 a year.
for depreciation.
Estimated revenue cost:
$0.2 billion in FY2010;
$1.5 billion over 10 years.

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