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NTF
Issue Paper: pres3.doc. 2-03. BACKGROUND.
Our nation still suffers from an economic recession,
but President Bush is taking action to strengthen our economy and alleviate
taxpayer suffering. His plan has 3
major objectives: 1) encourage consumer spending to boost the economy; 2)
promote investment by individuals and businesses that will spur economic growth
and new jobs; and 3) allow the unemployed to open re-employment accounts to help
themselves find employment. Speeding
the 2001 tax cuts would increase the growth of recovery and job creation.
Ending taxation of stock dividends twice and offering small businesses
incentives to expand would encourage job creation.
Bush would reduce tax distortions and cut marginal income tax rates. TAX
CUTS FOR ALL. Everyone
who pays federal taxes will benefit. All
2001 tax cuts would take effect immediately.
The Treasury Dept. will adjust the amount of money withheld for income
taxes, so that we keep more of our paychecks.
92 million taxpayers would gain an average tax cut of $1,083 this year.1
46 million married couples would gain an average cut of $1,716. A typical family
of 4 with 2 incomes, earning a total of $39,000, would gain $1,100 in tax
relief. An accelerated
reduction in the marriage penalty, quicker increase in the child tax credit from
$600 to $1,000, and immediate application of the lower 10% tax bracket.
The amount of income that applies to the 10% income tax bracket, instead
of waiting until 2008, now would rise from $12,000 to $14,000 of income for
joint returns and from $6,000 to $7,000 for single filers.2
Several million working Americans will glide into this lowest tax
bracket. Anyone who invests in the
stock market and receives dividends will see the end of double taxation of
dividends. The IRS first taxes a
company on its profits, then taxes investors who receive dividends.
About 35 million households receive dividend income.
About 50% of dividend income goes to the elderly, who depend on these
checks for a steady source of retirement income.
The average tax savings for elderly receiving dividends would amount to
$936. Americans earning
$40,000-$50,000 annually will save $84, according to the Brookings Institute. Permitting taxpayers to exclude dividend payments from
taxable income would return about $20 billion to the economy in 2003.
The median family of 4 would save $532 under the Bush marriage penalty
alleviation. Parents with 2 kids
would save $800 yearly.3
34 million families with kids will gain an average cut of $1,473.4 IN
NEBRASKA. Nebraskans
with median adjusted gross income of $61,065 pay about $4,337 in fed income tax
now. They would pay on average
$3,205 under the revision, saving $1,133, or 26.1%.5
BOON
FOR BUSINESS. Small
business owners who buy equipment to expand would see an increase in the
expensing limits from $25,000 to $75,000 and index this amount to inflation.
Companies would use this incentive to purchase new technology, machines,
and other equipment to increase production.
2.1 million new jobs will appear over the next 3 years.
When people retain more of their income, they more likely spend more,
thus creating jobs. The U.S. has
one of the worst tax treatments for dividends in the industrialized world. The Bush dividend untaxing will boost the stock market,
lessen tax code bias against savings, and reduce the incentive for corporations
to assume too much debt and excessively retain earnings. The plan would boost Gross Domestic Product growth between
2003 and 2007 by 2% annually.6
The Federal Reserve notes that over half of American households own
stock, compared to about 1/3 in the ‘90s.
The IRS states that over 25% of filers claimed dividend income on 2000
returns.7
Taxpayers receiving dividends would gain 65c of each new dollar of
corporate profits instead of 30c under current law.
Shareholders will keep 100c on each new dividend $, compared to 65c on
each $ of interest paid from corporate bonds.
Such will force corporations to reduce their issuance of new debt and
rely more on dividend-paying stock finance.
This tax-induced shift in shareholder demand from interest-bearing bonds
to dividend-paying stocks would stop companies from over-borrowing and
debt-leveraging too high, which worsens economic downturns and hastens business
bankruptcies. Tax-free dividend payments will encourage shareholders to
demand more of what corporations earn, forcing companies to reduce their excess
cash on hand and pay more $$ to shareholders.
Investors will more often evaluate corporate credit on the basis of
dividend yields instead of on contradictory research reports.8 UNEMPLOYMENT
AID. Re-employment accounts would give the
unemployed up to $3,000 to use for job training, transportation, and moving
costs. Those finding work within 13
weeks could retain leftover funds from their accounts as a bonus.
RETIREMENT
BOON. The
Bush Administration seeks to encourage an increase in the flagging personal
savings rate and simplify the confusing maze of retirement savings choices and
other tax-deferred accounts for items like college education and medical savings
accounts. By January, 2002, over 42
million Americans had placed more than $2.5 trillion into IRAs, mostly in
traditional accounts. Savers could
retain existing individual retirement accounts but phase out future tax-free
contributions of up to $3,000 annually in traditional IRAs.
Bush would end extra penalties for withdrawing money prematurely from
existing IRAs, however, gains would become taxable. Regardless of income, savers could contribute up to $7,500
annually to a new retirement savings account similar to the Roth IRA.
It would not offer a beginning tax deduction but would permit all monies
accumulated in the account to become withdrawn tax-free in retirement.
Now, tax-free Roth retirement accounts apply only to individuals with
incomes of less than $90,000 and couples with incomes under $150,000. A Lifetime Savings Account, with maximum yearly contribution
of $7,500, would permit tax-free withdrawals for all purposes at whatever age.
WHAT
TO DO. Time
is short, because congressional high taxers and big spenders are mobilizing to
derail and squash this proposal that would return to us our tax $$.
Act quickly, as follows: Research and documentation for this issue paper done by Doug Kagan and Randy Pfeiffer. This material copyrighted by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by Taxwatchers, Inc., Dawes County Taxpayers, the NE Libertarian Party, and other groups in the Tax Freedom Network. 2-03. Copyrighted. |