May 12, 2006 | Contact: Robert Reilly Deputy Chief of Staff Office: (717) 600-1919 |
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For Immediate Release | ||||
House Votes to Stop Tax Increases, Keep the Economy Moving |
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A basic principle of economics is: If you want more of something, tax it less. If you want less of something, tax it more. This self-evident principle is the reason why increasing taxes on savings, investment, and job creation is not good public policy. Since the United States economy began its rebound in 2003, Gross Domestic Product - the total value of all goods and services produced in the United States - has grown at an average annual rate of 3.7 percent. The United States unemployment rate has now fallen to 4.7 percent, less than the average unemployment rate of the 1970s, 1980s, and 1990s - and far lower than the average unemployment rate in Europe. More than 5 million new jobs have been created; average after-tax, real income is up; and, the stock market has risen more than 40 percent, benefiting every family with a pension plan or 401(k) account. This economic landscape looks very different from what the country faced in the immediately preceding years. The “tech bubble” burst and the stock market began to lag in 2000. Corporate scandals were uncovered and terrorists struck the nation in 2001, further harming the economy. The current economic rebound began when Congress enacted the Jobs and Growth Tax Relief Act of 2003. This pro-growth, pro-jobs legislation established a top rate of 15% on income from capital gains and dividends, as well as a 5% rate (scheduled to fall to 0% in 2008) for taxpayers in the lowest tax brackets. These lower rates, however, were scheduled to revert to their previous, much higher levels beginning in 2009. This means taxing capital gains at up to a 20% rate, and taxing dividends at up to a 35% rate. If you want more of something, tax it less. If you want less of something, tax it more. After the Jobs and Growth bill was enacted, investor confidence increased and business investment took off. Increasing taxes on savings and investment, on the other hand, would likely sink investor confidence and dry up business investment. On May 10, 2006, I voted in favor of legislation (H.R. 4297) meant to avoid a major tax increase by extending the current tax rates on capital gains and dividends for another two years. In addition, H.R. 4297 prevents a whopping $31 billion tax increase on middle-income taxpayers increasingly forced to pay the Alternative Minimum Tax (AMT). Another provision of H.R. 4297 extends an expiring tax provision for growing small businesses. Opponents of H.R. 4297 will blame it for budget cuts and deficit spending. Here are the facts: Federal revenues declined in 2001 and 2002, when the economy was still struggling, and again in 2003, when tax relief had just been passed. But, thereafter, federal revenues began to grow due to increased economic activity. Specifically, total revenues to the federal treasury increased by $98 billion in 2004, a 5.5% increase. In 2005, revenues increased by $274 billion, an amazing 14.5% increase over the 2004 level. Federal revenues continue to grow at a brisk pace today. If you are wondering why we still have a deficit when federal revenues are growing, the answer is that overall federal spending continues to grow every year too. Some of this increased spending is necessary and critically important, such as an increase of $59 billion over the last three years to preserve Medicare for the growing population of retirees or funding to support our troops that are serving in harm’s way. Too much of this spending, however, is wasteful, such as “pork barrel” spending and corporate welfare. The solution to our fiscal problems then is not a large tax hike on individuals, families, and businesses. Rather, we need to facilitate continued economic growth coupled with more responsible spending decisions in Washington. In fact, without the substantial increases in federal revenue in 2004, 2005, and now 2006, which are due to increased private sector growth following enactment of the 2003 tax relief package, the federal deficit would be significantly larger. H.R. 4297 was passed in the House by a vote of 244 to 185 and in the Senate one day later by a vote of 54 to 44. The President is expected to sign H.R. 4297 into law in the very near future. Enactment of this legislation will help to ensure continued economic growth and job creation for our nation and its citizens.
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