The fifth anniversary is traditionally the “wood” one. But this year, instead of getting another knick-knack, millions of Americans are celebrating a fifth anniversary with paper. Paper money, that is -- and more of it.
That’s because our country just marked the fifth year of the 2003 tax cuts.
Five years ago, Congress and the president agreed to accelerate the key provisions of the 2001 tax act that:
- Doubled the child tax credit to $1,000 per child.
- Fixed the “marriage penalty” -- that quirk of the tax code that forced couples filing jointly to pay more that singles filing separately.
- Expanded the earned-income credit for married joint filers.
- Created a 10 percent tax bracket for low-income taxpayers.
- Reduced marginal tax rates across the board.
The 2003 tax bill also slashed the top capital-gains tax rate from 20 to 15 percent and cut the tax rate on dividends from as high as 39.6 percent to 15 percent.
These cuts gave people an incentive to work, save and invest. The results have been impressive.
Although the media harps on our current economic woes, it’s important to note that with the tax cuts in place, the economy started growing almost immediately, adding jobs every month from August 2003 until January of this year. More than 8 million new jobs were created during those years, keeping unemployment low and providing steady growth (economic growth rates have more than doubled) for the overall economy.
Without the cuts, the White House estimates Americans would have paid an additional $1.3 trillion in taxes by the end of last year.
Ironically, these cuts also tilted our tax system so the rich shoulder a bigger share of the total tax burden. According to IRS statistics, the top 5 percent of income earners paid more than half (59.7 percent) of all income taxes in 2005. That’s the highest percentage since the government started keeping track in the mid-1980s.
Meanwhile, tax revenues have been rising. In 2003, federal revenues equaled 16.1 percent of our economy. Two years later, that percentage had climbed to 17.4 -- then to 18.6 the following year. Instead of starving our government of funds, the correct type of tax cuts have stimulated growth and thus increased overall tax revenue.
There’s still more to do, of course. After the capital-gains rate was cut in 2003, capital gains tax revenues doubled. Lawmakers should consider just eliminating this tax, which amounts to an unfair form of double taxation.
Unfortunately, the prevailing political winds are blowing the other way. Consider an environmental measure, sponsored by Sens. Joe Lieberman, I-Conn., and John Warner, R-Va., that lawmakers plan to take up this month.
Its backers portray it as a way to combat global warming, but it’s really just a massive tax hike. The goal is to increase the cost of energy, so people will be forced to use less of it. In short, it would hit every American right in the wallet.
Recently, The Heritage Foundation’s Center for Data Analysis (CDA) projected the economic costs of the “Lieberman-Warner” bill. Under it, our country would lose some 500,000 jobs per year, eventually wiping out all the gains from the 2003 tax cut.
At the same time, the Heritage study found, the average household will pay $467 more each year for its natural gas and electricity (in inflation-adjusted 2006 dollars). That’s the equivalent of a couple weeks’ worth of groceries -- gone.
With the economy slowing and politicians nervous about unemployment numbers, it makes little sense to even talk about hiking taxes and slowing growth.
Instead, lawmakers should celebrate this anniversary by locking in the benefits of the 2003 tax cuts. They should make them permanent. (They’re set to expire starting in 2011.) That’s the surest way to guarantee many happy returns.