Q & A: Tax Relief for Families, Job Creation


Q. What’s going on with the 2001–2003 tax cuts? 

 

A. The marginal rate cuts and the family tax relief of the bipartisan tax reform that was enacted in 2001 and 2003 are among the most important issues facing this Congress. These cuts are scheduled to expire in December 2010. If Congress doesn’t act, Americans will be hit with the biggest tax increase in history, and it will happen without a vote of Congress.

 

I got the 2001 tax relief through Congress as Chairman of the Finance Committee. It was the biggest tax cut in a generation, and it passed with strong bipartisan support. The legislation reduced the tax rate on families in the lowest income tax bracket from 15 to 10 percent. It removed millions of very low-income people from the federal tax rolls entirely. It increased the child tax credit from $500 to $1,000. My bill included marriage penalty relief. It created the first-ever tax deduction for tuition, extended the tax deductibility of interest on student loans, and expanded the tax-free college savings plans known as 529s. In 2003, to help the economic recovery after 9-11, I worked to get through tax relief for dividends and capital gains in order to help spur economic growth. The expanding economy helped reduce the annual budget deficit from $415 billion in 2004 to $167 billion in 2007. In addition, the 2001 and 2003 tax relief bills I sponsored made the tax system more progressive.

 

Q. Why should these tax cuts be extended?

 

A. If tax relief enacted since 2001 is allowed to expire, a family of four with two kids who earn $50,000 today would see a $2,155 increase in its tax bill. More than six million low-income people who currently have no federal income tax liability would be subject to the individual income tax. About half the heavy tax increases would fall on small business owners and the top marginal rate on small business owners would rise by almost 17 percent. Small businesses create 70 percent of net new jobs, and it will be a lot harder for them to hire more workers if their taxes skyrocket. Beyond that, if Congress doesn’t act to extend the expiring tax policies, the top capital gains rate will rise by 33 percent, and the top dividend rate could nearly triple, which would inhibit investment and the kind of private-sector economic activity that creates jobs.

 

Washington needs to learn that leaving more money in people’s pockets unleashes a positive chain reaction for the economy. On the other hand, government spending doesn’t create wealth, it only consumes wealth and doesn’t make America’s economy stronger. It’s up to the leadership of Congress to extend expiring tax relief for families, individuals, small businesses, entrepreneurs and job creation.