What is the JGTRRA?
The Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) was a tax law that Congress passed on May 23, 2003, in the United States. It cut the highest rate of tax that individuals had to pay on company dividends to 15%.
There was a push for the JGTRRA to get the U.S. economy going again after the 9/11 attacks and the 2011 slump. Investors paid less tax on profits and capital gains, which made public companies more likely to pay dividends instead of keeping their cash on hand. This helped the economy grow.
How to Understand JGTRRA
The 9/11 attacks and the subsequent slump led to the passage of the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). This law did its intended function of boosting the U.S. economy. The law cut the rate on long-term capital gains from 20% to 15%. Perhaps even more controversially, the law stopped treating capital gains as ordinary income and started treating them as long-term capital gains.
Like EGTRRA, passed in June 2001 during President George W. Bush’s first year in office, the law wasn’t meant to last forever. It was a good year for the U.S. economy in 2004, with GDP at around 3-4%. Some experts think that GDP should be between 2% and 3%. It is now clear that many risky new investments in housing and other areas made the economy too hot. This led to the crash of 2008, one of the worst recessions in U.S. history. Because of the Great Recession in 2008, President Obama and Congress couldn’t change either the EGTRRA of 2001 or the JGTRRA of 2003. Neither law ended what it was meant to end when it was first passed.
Provisions for Sunset and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
Many would say the U.S. economy is out of balance with a nearly $21.0 trillion budget deficit. The world economy is a careful balancing act. Every family knows you can’t cut back on income and spend more to make ends meet without borrowing money. Short-term fixes are politically astute during tough times, but it’s still unclear if there is a natural way to police the end provisions put in place when the bill was passed. For example, the tax cuts passed at the end of 2017 say that the individual tax brackets will go back to how they were before 2025.
Sunset rules have been around for a very long time. Thomas Jefferson believed that laws made by one group shouldn’t apply to the next. At the most intellectual level, this worry about future generations has led to using sunset clauses to make society more fair. Nothing is worse for parents than leaving the world in worse shape for their children. The death clause has become popular in U.S. politics as the only way to pass tax cuts, resulting in a $21 trillion debt that will likely impact many generations.
