Number: RS21171
Title: The Rate Reduction Tax Credit -- "The Tax Rebate" -- in the Economic Growth and Tax Relief Reconciliation Act of 2001: A Brief Explanation
Authors: Steven Maguire, Government and Finance Division 
Abstract: The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) created a rate reduction tax credit (RRTC) for tax year 2001. The RRTC was structured to mimic a 10% income tax bracket. The tax relief provided by this credit was transmitted to taxpayers via an advance check that was mailed to taxpayers in 2001. These advance checks were based on information from income tax returns filed for tax year 2000. The advance checks were not a rebate of taxes paid in tax year 2000. Congress adopted the RRTC and the advance check transmission mechanism to circumvent the problems associated with trying to provide immediate tax relief through income tax withholding. Congress later clarified how the RRTC would interact with the child tax credit and how dependents and nonresident aliens would be affected. The IRS reported that through mid-February 2002, more than 1 million returns had RRTC related errors. Economic analysis of the rebates generally concludes that households spent between 20% and 40% of the rebate checks soon after receipt. The magnitude of the RRTC impact on the economy in 2001, however, is uncertain.
Pages: 6
Date: January 22, 2008