When Republicans passed major tax relief packages in 2001 and 2003, we predicted that a booming economy, new jobs for millions of Americans, and an increase in investment and innovation would result.
The past several years have proved our theory correct: When government gets out of the way, the American people will get to work.
The 2001 and 2003 tax reductions have spurred more than five years of uninterrupted growth.
The economy grew at a robust 3.4 percent in the second quarter of 2007. Productivity growth has averaged 2.8 percent since 2001, considerably above the average of each of the past three decades.
Since August 2003, our economy has created more than 8.2 million jobs, and the current unemployment rate is just 4.5 percent, lower than the averages of the 1960s, 1970s, 1980s, and 1990s.
Wages have been on the rise, and real after-tax income is up 9.9 percent since President Bush took office, an average of nearly $3,000 per person.
The tax relief has helped produce an economy that has generated higher-than-expected tax revenues for the federal government. Tax receipts have risen 37 percent over the last three years and are projected to increase another 7 percent this year.
These rising tax receipts have, in turn, helped drive down the deficit, which is projected to drop significantly in 2007 for the third year in a row. The deficit this year is expected to measure just 1.5 percent of GDP, considerably below the average of the last 40 years.
The tax relief we passed has had exactly the effect we intended – it has spurred growth and innovation and created jobs and opportunities for millions of Americans.
But continuing this growth requires continuing the policies that have produced this growth in the first place. Failing to extend the tax relief we have passed would result in a de facto tax hike that could cripple our economy and undo much of the progress we have made over the last few years.
Lowering taxes on income and investment encourages people to work more and invest more, because they get a greater return on their work and investments.
This extra work and investment creates new jobs, increases productivity, and encourages innovation and development – in other words, produces economic growth, as we saw with the 2001 and 2003 tax relief.
Raising taxes, on the other hand, has the opposite effect. As rates increase, the rewards of labor and investment decrease.
People see more of their income and the returns on their investments eaten up by taxes, and this gives them little incentive to work more or invest more. Without new labor and investment, economic growth grinds to a halt, and the economy stagnates.
Unfortunately, Democrats have approved a budget that fails to extend the bulk of the 2001 and 2003 tax relief – most of which is set to expire in the next few years – resulting in a staggering tax hike of at least $736 billion.
Most notably, the Democrats’ budget fails to extend the lower tax rate on capital gains and dividends and most of the income tax relief we’ve passed, the two provisions that have done the most to spur the strong economic growth of the past several years.
In addition to this massive tax hike, Democrats on the House Ways and Means Committee also are proposing another growth-stifling tax hike to pay for alternative minimum tax relief, this one a 4 percent tax hike on higher income Americans and small business owners.
Almost 20 million Americans will be liable for the AMT this year if Congress doesn’t act.
While Republicans strongly agree that the AMT must be fixed once and for all so that it doesn’t target millions of middle-class families, paying for an AMT fix with a tax hike is not the answer.
Raising taxes on these Americans would place a particularly heavy burden on small businesses, most of which are taxed at the individual level.
Small businesses employ half of all private-sector employees and have been responsible for 60 percent to 80 percent of the net new jobs created annually over the last 10 years. Burdening successful small businesses with significant tax hikes, as the Democrats’ plan would do, would jeopardize future economic growth and job creation.
The success of Republican tax relief policies is clear. In contrast, raising taxes – by allowing tax relief to expire or by passing burdensome new tax hikes – would threaten the progress our economy has made and discourage future growth.
Democrats should remember the millions of taxpayers who have benefited from the tax relief we’ve passed and work with Republicans to extend the tax relief and reject new taxes.
Sen. Jon Kyl of Arizona is chairman of the Senate Republican Conference. Website: http://kyl.senate.gov