When it comes to financial security, “continuity and certainty” are important to America’s households. They are equally important for job creation and economic growth. It is up to Congress to provide Americans with the certainty needed to create a stable, pro-growth, job-creating environment to allow families to plan, save and prepare for their futures.
This week, the U.S. House of Representatives is expected to consider the Tax Relief Extension Reconciliation Act of 2005. This legislation builds on the success of tax relief enacted in 2001, 2003, and 2004.
In 2001 and 2003, Congress enacted legislation that reduces the amount of money taken out of Americans’ paychecks and sent to Uncle Sam. For example, the 2001 law reduced income-tax rates across the board for all Americans, created the new 10-percent tax bracket to further reduce the tax burden on low-income individuals, and reduced the marriage-penalty tax. However, this tax relief was temporary because of arcane U.S. Senate budgetary rules. So, in ensuing years and tax bills, Congress extended the tax relief before it expired in order to give Americans more continuity and stability.
That’s why we are again considering legislation that will continue tax relief that is already in law. It’s essential to continue these efforts and build upon the success that has resulted from these policies. The bill the House is voting on extends many current-law provisions that otherwise are set to expire at the end of this month. The expiration of these provisions would raise taxes on millions of Americans.
For instance, the bill extends a current-law provision that ensures middle-income families are not harmed from the alternative minimum tax (or the “AMT”) if they claim tax credits for higher education or dependent care. It also extends and expands a current-law tax credit that encourages employers to hire veterans, food-stamp recipients, and other groups that may face barriers to employment. In addition, the legislation extends the Saver’s Credit, a provision that allows low-income individuals who make contributions to an IRA or qualified pension plan to receive a federal “match” in the form of an income-tax credit for the first $2,000 of annual contributions.
Moreover, the bill extends the reduced tax rates on capital gains and dividends, which are set to expire at the end of 2008. Millions of Americans are building nest eggs for retirement by investing a portion of their hard-earned money, helping to alleviate the problem of Americans’ insufficient savings. These taxpayers will be negatively affected if these tax rates are allowed to increase in 2009. This is broad-based tax relief: 24 million families received an average benefit of more than $900 on their 2004 tax returns, of which seven million are seniors who benefited by an average of more than $1,200.
More importantly, by not continuing our current policies, we risk losing the gains the stock market and the economy have already achieved since tax rates on dividends and capital gains were reduced in 2003. During deliberations of that 2003 tax bill, the stock market increased 18 percent. Since enactment of the lower rates, the economy has grown an impressive 4.1 percent annually and created 4.4 million jobs.
To assist further economic expansion through business activity, the legislation encourages continued investment in new technologies by extending an expanded version of the research-and-development tax credit for one more year–helping U.S. business to continue to be at the forefront of the global economy. It also extends the higher expensing amount for small businesses for two years, which has freed up money for small-business employers to create new jobs and invest in the economy.
It is imperative to move this legislation now to keep intact the tax relief that has resulted in a strong economy and robust job creation. Congress should provide Americans with continued tax certainty and continued opportunities to save for their future needs.