Legislation
The Effects of the Economic Growth and Tax Relief Reconciliation Act of 2001 on Retirement Savings and Income Security
Research Report
Leonard E. Burman, The Urban Institute and the Tax Policy Center
William G. Gale, The Brookings Institution and the Tax Policy Center
Matthew Hall, The Brookings Institution
April 2005
We have frequently looked to government to stimulate private saving, usually through tax incentives for such things as home purchases, for retirement saving, for health insurance, and for education…In 2001, the Bush Administration proposed and Congress enacted the Economic Growth and Tax Reform Reconciliation Act (EGTRRA), which was in part explicitly intended to increase national saving by means of liberalized contributions to defined contribution pension plans and Individual Retirement Accounts and the reduction and subsequent repeal of the estate tax. However, as this AARP Public Policy Institute Issue Paper shows, the net effect of EGTRRA will be to increase private saving only at the expense of increasing public borrowing (i.e., increased federal budget deficits), resulting in an overall decline in national saving of as much as one percent of GDP. EGTRRA's tax benefits were also largely bestowed on the highest-income fifth of the population, a group more likely to simply swap taxable for nontaxable saving when presented with new tax benefits. Consequently, less new saving would be generated than if the tax benefits were more targeted on low- and moderate-income families. (62 pages)
Associate Director, AARP Public Policy Institute
Pub ID: 2005-03