Briefs
2
Economic Research Service/USDA
Agricultural Outlook/September 2001
The Economic Growth and Tax Relief
Reconciliation Act of 2001, signed
into law on June 7, 2001, makes signifi-
cant changes to U.S. tax law. Most of the
law’s provisions apply to farmers as gen-
eral taxpayers.
The law reduces Federal income taxes in
several ways, with the largest cut being an
across-the-board reduction in marginal
income tax rates. It increases income tax
benefits for families with children, prima-
rily by expanding the child tax credit. It
also addresses the “marriage penalty” that
has resulted in some couples paying more
tax than if they were single. It increases
education incentives and allows higher
contributions and greater flexibility for
individual retirement accounts and pen-
sions. Federal estate taxes will be reduced
and eventually repealed, a cut advocated
to help farmers and small businesses.
The law creates a new 10-percent income
tax bracket for the first $12,000 of taxable
income on a joint return ($6,000 for sin-
gles). Marginal tax rates also are reduced
for the 28-, 31-, 36- and 39.6-percent
income tax brackets (the 15-percent
bracket rate remains unchanged). The
reductions are gradual and become fully
effective in 2006 when the rates will be
25, 28, 33 and 35 percent, respectively.
The new 10-percent bracket for a portion
of taxpayers’ income is the basis for the
special refund checks currently being
mailed by the Internal Revenue Service
between July and the end of September.
The checks are a one-time advance pay-
ment of some of the 2001 tax savings.
Nearly two-thirds of farmers are expected
to receive the maximum refund, which for
a joint return is $600.
About 85 percent of farmers will benefit
from the income tax reductions specified
in the new law. Prior to passage, farmers
were expected to pay a total of $26 billion
in Federal income taxes in 2001 on farm
and nonfarm income. Under the new law,
farmers are likely to save $1.2 billion in
income taxes during 2001. The present
value—the value of mon