Last year, a majority in Congress, working closely with President Bush, acted decisively to lower taxes for all taxpayers and small businesses to stimulate economic growth and help businesses create jobs. The Jobs and Growth Tax Relief Reconciliation Act, as the proposal came to be known, was signed into law on May 28, 2003. The following are some of this important new law’s key provisions:

1. We accelerated income tax rate reductions effective January 1, 2003. Congress actually passed these reductions back in 2001, but to overcome the opposition of a minority of Senators, the reductions were phased in over a 10-year period. I agree with President Bush, who has said that if tax relief is good for American workers and families in the future, it is even better for them now.
   
   
2. We reduced the top tax rate on dividends and capital gains to 15 percent. This is especially beneficial to seniors, who receive half of all dividend income and depend on it for their retirement. This has also helped the stock markets recover, benefiting the more than half of American households that currently own stocks. As more individuals invest in the stock market, businesses are able to raise funds to expand and create new jobs.
   
   
3. We expanded the 10 percent tax bracket effective January 1, 2003. Three million families saw their income tax burden eliminated entirely last year, and a married couple with two children and an income of $40,000 had their taxes reduced, on average, from $1,178 to $45, a 96 percent decline.
   
   
4. We increased the Child Tax Credit from $600 to $1,000 effective January 1, 2003. Last year, the Treasury Department mailed to an estimated 34 million families a $400 check for each dependent child, bringing their total credit per child to $1,000.
   
   
5. We reduced the Marriage Penalty effective January 1, 2003. This provision restores fairness in the Tax Code and is benefiting an estimated 46 million married couples.
   
   
6. We quadrupled small business expensing from $25,000 to $100,000 and increased bonus depreciation for all businesses to 50 percent through 2004. This allows businesses across the country better tax treatment in the purchase of new equipment and to expand their operations, creating new opportunities and jobs for workers.

Most economists agree the new law has given a critical boost to our economic recovery. All Americans can be encouraged by recent economic developments:

• According to the payroll survey, 112,000 new jobs were created in January, the largest monthly increase since December 2000. The national unemployment rate in January continues the steady decline from 6.3 percent in June 2003, the fastest seven-month decline in nearly a decade. According to the household survey, at 5.6 percent, the unemployment rate is below the average of the 1970s, 1980s, and 1990s.
  
  
• Real gross domestic product (GDP) grew at an annual rate of 6.1 percent in the second half of 2003, the fastest six-month growth rate in nearly 20 years. Productivity growth from 2000 to 2003 was the fastest three-year growth in more than 50 years.
  
  
• Consumer confidence is at its highest level in 18 months, and is rising. And consumers’ expectations about employment are at their highest level in nearly 20 years.
  
  
• Growth in factory orders remained solid in the fourth quarter after a very strong third quarter, and manufacturers report that increases in business activity and new orders are at the highest level in nearly 20 years.
  
  
• Businesses outside of manufacturing also report widespread increases in activity and new orders. In January of 2004, the ISM index of non-manufacturing business activity reached its highest level since the survey began in 1997.
  
  
• Housing construction in 2003 was the strongest in 25 years. Alan Greenspan, chairman of the Federal Reserve Board, predicts that real GDP growth will remain strong at 4.5 to five percent in 2004.
  
  
  (Statistics courtesy of: http://www.whitehouse.gov/infocus/economy/index.html)

Despite these promising developments, some in Congress would be happy to repeal all or part of this tax relief. Unless Congress acts to make this tax relief permanent, the taxes of every American will go up. Next year, portions of the tax relief such as the increased child credit, the additional marriage penalty relief and the expanded 10-percent bracket will sunset, raising taxes on families and low income taxpayers. In 2006, allowable small business expensing will shrink $100,000 to $25,000, increasing the cost of capital investments for small businesses. In 2009, the tax burden on retirees and families investing for their future will rise when the top dividend tax rate increases from 15 to 35 percent and the tax on capital gains climbs from 15 to 20 percent. In 2011, the rate relief, new 10-percent tax bracket, death tax repeal, marriage penalty relief, and all the remaining tax relief enacted over the past three years will sunset, further increasing taxes for every American taxpayer.

Some critics say the income tax rate reductions were only for the rich. This is simply untrue. Small business owners and entrepreneurs, who account for more than two-thirds of top-bracket income tax returns, received 79 percent of the top-bracket tax relief. In fact, the tax relief enacted in 2003 actually made the tax code more progressive. As a result, high-income earners now pay a greater percentage of total income taxes, while the percentage of income taxes paid by lower income earners has decreased.

Other critics say that the tax cuts “cost” too much. I have always found this to be a curious argument, since tax relief simply allows Americans to keep more of their own hard-earned money. The “cost” here is to politicians who believe they know best how spend your money and would rather it be spent in Washington.

Like many Americans, I am concerned about the size of this year’s projected deficit. However, it is not the tax cuts that are driving the deficit: it is out-of-control spending by the federal government. According to an analysis by the Tax Foundation, spending increases account for 70 percent of the swing in the government’s bottom line. Tax relief is helping to turn the economy around. Only a healthy and growing economy will produce the revenues necessary to return to a balanced budget – provided that Congress holds the line on spending. And tax relief is the key to ensuring that growth.

As President Kennedy and President Reagan both said in support of tax cuts to stimulate the economy: “A rising tide lifts all boats.”

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