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269 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0266 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. November 12, 2010 Advisory No. 269 A PROGROWTH AGENDA FOR CONGRESS Uncertainty about future public policies coming out of Washington, D.C., and the prospect of huge tax increases is stifling potential recovery and job creation. Business owners do not know what capital, labor or facilities will cost if they expand-or what their personal tax rates will be. The most important step Washington can take to spur recovery is to immediately and permanently reduce taxes on capital and labor. Following are five measures that will lower the tax burden, create jobs and accelerate economic growth. Extend the Bush Tax Cuts The 2001 and 2003 Bush income tax cuts lowered rates for all taxpayers, reduced taxes on capital gains and qualified dividends, eliminated the phase-out of personal exemptions and itemized deductions that hiked marginal tax rates on many middle and upper income earners, and phased out the estate tax. But the reduced rates will expire at the end of 2010, and President Obama does not want to renew them for all taxpayers. Congress seems eager to renew other 2001 provisions related to children, marriage and low income earners-but, however worthy, these did not drive economic growth from 2003 to 2008. It is less certain to renew the progrowth elements of the Bush tax cuts. Extending them would dispel some of the fear that is holding back the current expansion. Letting them expire would weaken the economy. Small Business Taxes. Unless Congress acts, the top two personal income tax rates will return to their pre-2001 levels, and the phase-outs of exemptions and deductions will return: The top marginal personal income tax rate will increase from 35 percent to 39.6 percent. The second highest rate will increase from 33 percent to 36 percent. The loss of personal exemptions will further increase the top four tax rates (25 percent and above) by about 1 percentage point for single filers to 4 percentage points for families of four, and the loss of itemized deductions will add roughly another percentage point to the tax rate. Many small businesses would pay these higher personal income tax rates. The Joint Committee on Taxation found that 50 percent of business income will be reported on returns facing 36 or 39.6 percent tax rates. Capital Gains and Dividends. The increased value-capital gains-of assets held more than a year are currently taxed at a flat 15 percent. (The capital gains of individuals in the 10 percent and 15 percent tax brackets are not taxed.) Corporate shareholders' dividends are also taxed at a 15 percent rate. In 2011, however: g~.3 S I 66. 6

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