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An Open Letter to the Senate Finance Committee: Support Tax Cut Extensions for Capital Gains and Dividends!

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Dear Senator:

On behalf of the 350,000 members of the National Taxpayers Union (NTU), I urge you to go forward with renewal of economically-important extensions for capital gains and dividends tax cuts. Although NTU and our members enthusiastically support any effort to reduce the overwhelming burden that high taxes place upon Americans, further extension of these two provisions beyond 2008 is an important step towards ensuring that current economic progress continues.

Corporations pay dividends to investors out of after-tax profits, yet these dollars are then subject to another tax: the personal income tax paid by the individuals who receive them. This multiple taxation of dividends discourages investors from finding equity investments that pay a steady stream of income, as well as encourages corporations to retain profits and seek debt financing solely for tax purposes. Although these tax cuts are consistently portrayed as "for the wealthy," that facade fails to hold up under scrutiny. In fact, millions of families would benefit from dividend tax relief whether or not they directly receive dividends. For example, by the end of 2000, about 42 million workers in the United States with a median annual salary of less than $60,000 owned a 401(k) plan. Similarly, at the start of 2002, some 40 percent of U.S. households with a median annual household income of $55,000 owned an individual retirement account.

Likewise, the capital gains tax cuts have substantially raised tax collections and increased tax payments by the rich (as seen in the latest data published by the IRS), boosted the rate of capital formation, economic growth, and job creation, unlocked hundreds of billions of dollars of unrealized capital gains, and expanded economic opportunities for the most economically disadvantaged workers by bringing jobs and new businesses to capital-starved areas. Simply put, the capital gains tax is economically inefficient because of its punitive effect on entrepreneurship, thrift, and investment.

These two tax cuts have been among the most important pro-growth economic policies enacted over the past five years. Their timely passage was a leading factor in bringing the American economy out of the most recent slump and they played a significant role in driving FY 2005 federal tax revenues nearly 15 percent higher than FY 2004 levels.

Far from obviating the need for tax cuts, today's strong economic growth has only further illustrated the importance of pro-growth policies. We look forward to working with your Committee on renewal of these and other important components of recent tax reform packages. Please contact me at 703-683-5700 or via email at pgessing@ntu.org.

Sincerely,

Paul J. Gessing
Director of Government Affairs