By Johnny Isakson
Federal income tax policy drives the financial decisions of business and individuals alike. It always has, and it always will. Tax reductions spur the economy. They always have, and they always will.
This month, the United States House of Representatives will act on President Bush’s economic stimulus-and-growth tax reduction proposals. I fully support the president’s proposals and the additions included in the recommendations of the House Ways and Means Committee. These recommendations properly address three key factors essential to economic prosperity: consumer purchasing power, individual and corporate investment, and job creation.
The president’s acceleration of the 2006 income tax reductions to 2003 will immediately increase the purchasing power of every taxpaying American citizen. The average American family of four earning $45,000 a year will realize more than $1,000 a year in additional take-home pay. Lower taxes and increased take-home pay benefits both American families and the American economy.
Increases in depreciation allowances for business and an increased allowance for expensing capital purchases for small business, meanwhile, will spur equipment purchases by business and create more jobs for Americans. Given that small business is America’s employment engine, the increase in expense allowance for small business alone will be a tremendous economic boost.
While I support the president’s full elimination of the tax on dividends, the Ways and Means Committee’s recommendation to lower the income tax rate on dividends from the ordinary income tax rate to the capital gains rate, coupled with a reduction in the capital gains rate, is a tremendous economic boost for senior citizens, families investing for the future and corporations. This proposal cuts capital gains taxes for those in the lowest tax brackets from 10 percent to 5 percent, and cuts the tax for all other taxpayers from 20 percent to 15 percent.
Historically, capital gains tax reductions have resulted in freeing stranded capital in mature investments and increasing capital for new investment. These cuts in capital gains and dividend taxes will increase the purchasing power of senior citizens, stimulate investment and capital formation in business, and increase job creation in America.
In the last half of the 20th century, President John Kennedy and President Ronald Reagan cut taxes to stimulate economic growth, investment and job creation. Now, in the first half of the 21st century, President Bush has courageously charted the same course for America’s families and businesses. History will repeat itself, which is why this president, too, deserves full support for his bold policy.
Johnny Isakson represents the 6th District of Georgia in the United States House of Representatives. The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (May 2, 2003). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.