April 7, 2006 | Commentary on Taxes
Going to work. It's a daily routine for most Americans.
But suppose one day your boss suddenly announces the office is moving. He can't say where or when, though. Oh, and work hours would be changing, too. But what those hours will be, he couldn't say.
You can imagine how most people would react. They'd probably start updating their resumes.
Of course, no sane business would operate in such an unpredictable fashion. But when it comes to tax policy, the federal government does. And since tax policy affects the bottom line for all of us, we should ask why.
In 2003, President Bush and Congress collaborated on common-sense tax relief. They reduced the tax rates on capital gains and dividend income. The plan worked.
In the last three years, these lower rates have spurred the economy by encouraging entrepreneurs to invest and by prompting companies to increase dividend payments to stockholders. Both steps helped boost the stock market, which had been lagging since 9/11. The Dow is now growing steadily, passing 11,000 for the first time in several years. Our economy has created millions of new jobs, and people have more incentive to save and invest.
But between now and January 2009 (less than three years from now) most of the 2003 tax reforms are scheduled to expire. Most of the 2001 tax cuts will expire just two years later, in January 2011. Unless lawmakers act, rates will rise substantially. This would mean higher taxes on American families.
Investors and entrepreneurs are watching closely to see if lawmakers will extend the lower taxes on dividends and capital gains -- taxes set to increase as early as January 2009. There are two main reasons to lock in all the lower rates.
For one thing, doing so would boost the economy.
A computer model at The Heritage Foundation's Center for Data Analysis predicts what would happen if we made the lower rates permanent: