NCPA - National Center for Policy Analysis

EXTENDING THE 15 PERCENT TAX RATE WOULD ENCOURAGE SAVING AND INVESTMENT

July 19, 2005

The Economic Growth and Tax Relief Reconciliation Act of 2001, as amended by the Jobs and Growth Tax Relief Reconciliation Act of 2003, helped end the recession and turn around a slump in investment, says the Institute for Research on the Economics of Taxation. Extending the tax cuts will help secure an economic recovery, says IRET.

Currently, three provisions of the Act have either expired, or will soon expire, if not extended by Congress, says IRET.

  • Enacted in 2003, the 15 percent top tax rate on dividends and capital gains will expire at the end of 2008.
  • The marginal income tax rate cuts that accelerated to full effect in 2003 will expire at the end of 2010.
  • The 50 percent expensing provision in 2003 was billed as a temporary jump start for investment recovery and expired at the end of 2004.

Immediate extension will boost investment spending, employment and wages, says IRET. Moreover, the budget outlook has improved because of higher capital gain realizations and higher dividend payments.

  • For the fiscal year to date, federal revenues are 13.7 percent ($146 billion) ahead of 2004 levels.
  • The deficit for the current fiscal year is 15.8 percent ($47 billion) below that of 2004.
  • Additionally, there has been a large gain in taxes not withheld.

If the 15 percent tax rate cap is extended, revenue gains in 2005-2008 are estimated to be about half a billion dollars per year, says IRET.

Source: Stephen J. Entin, "Extending the Fifteen Percent Tax Rate on Dividends and Capital Gains," Institute for Research on the Economics of Taxation, June 30, 2005.

 

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