| 2001 | June 7, 2001, President George W. Bush — rates to 35% over six years; the 10% bracket; child credit to $1,000; estate tax phased to repeal in 2010; higher IRA and 401(k) limits |
| 2003 | May 28, 2003, President Bush — the rate cuts accelerated; 15% on capital gains and dividends; section 179 to $100,000 |
| 2010 | December 17, 2010, President Barack Obama — everything extended two years; a payroll tax holiday; estate tax at $5 million |
| 2012 | January 2, 2013, President Obama — the cuts made permanent except above $400,000 / $450,000; estate tax at $5 million indexed and 40%; the AMT patch made permanent |
| Still with us | The 10% bracket; the child credit; the 0 / 15 / 20% rates on gains and dividends; catch-up contributions; the Roth 401(k); a permanent, indexed AMT exemption; the $5 million-base estate exemption that 2017 doubled and 2025 set at $15 million |
Why it happened
By 2000 the federal budget was projecting surpluses of several trillion dollars over ten years, and the 2000 campaign was fought partly over what to do with them. The 2001 act returned a large share through rate cuts. Because the Senate was split 50–50 and the bill moved under budget reconciliation, it could not lose revenue beyond the ten-year window — which is why every provision was written to expire after December 31, 2010. That expiration date shaped tax politics for the next twelve years.
2001 and 2003
- Rates cut from 28/31/36/39.6% to 25/28/33/35%, phased in over six years in 2001 and then accelerated to take effect in 2003. A new 10% bracket was carved out of the 15% bracket, delivered for 2001 as checks of up to $600 mailed that summer.
- The child credit to $1,000 (also accelerated to 2003, with checks), and made partly refundable.
- 15% on long-term capital gains and, for the first time, on qualified dividends, which had been taxed as ordinary income at rates up to 39.6%. Taxpayers in the lower brackets paid 5%, then 0%.
- The estate tax phased down to repeal in 2010 — the exemption rising from $1 million to $3.5 million by 2009, then no estate tax at all for one year, then back to $1 million and 55% in 2011 under the sunset. 2010 was in fact the year of no estate tax.
- Retirement savings. The IRA limit from $2,000 to $5,000; the 401(k) limit from $10,500 to $15,000; catch-up contributions after age 50; the saver’s credit; the Roth 401(k). These were made permanent in 2006.
- Marriage penalty relief built into the standard deduction and the 15% bracket; PEP and Pease phased out.
- Section 179 from $25,000 to $100,000 and bonus depreciation at 50% — the start of the expensing that is now 100% and permanent.
2010 and the fiscal cliff
Everything was due to expire at the end of 2010. After the midterm election, the administration and Republican leaders agreed to extend all of it for two years in exchange for a payroll tax holiday — the employee’s Social Security tax cut from 6.2% to 4.2% for 2011 and 2012 — and extended unemployment benefits. The estate tax returned at $5 million and 35%, with a new rule letting a widow use her late husband’s unused exemption.
Two years later the extension, the payroll holiday, the annual AMT patch and automatic spending cuts all came due on the same night — the “fiscal cliff.” The compromise passed on New Year’s Day 2013. The 2001–2003 rates were made permanent for everyone below $400,000 single and $450,000 joint; above that, the 39.6% rate and a 20% rate on gains and dividends returned. The estate exemption was fixed at $5 million indexed, at 40%. The AMT exemption was indexed for good, ending a decade of December patches. The payroll holiday was allowed to expire, and every worker’s withholding went back up in January.
What it meant
A couple with two children saw their first dollars taxed at 10%, a $1,000 credit per child, and two rounds of checks in the mail. Investors saw dividends taxed at 15% rather than as ordinary income. A small business could write off most equipment in the year of purchase. And for a decade, nobody could say for certain what the rates would be two years out — a problem the 2017 law repeated with a 2025 sunset, and the 2025 law finally ended.