Give us back The American Dream

An article written by Dr. Martin Regalia that appeared in a recent issue of the U.S. Chamber news letter says that the American dream is turning into the American nightmare. Our economy is not yet on the road to recovery, almost one in every ten Americans are out of work.

He continues by saying that the nightmare is about to get worse. On January 1, 2011 Americans will face the largest tax hike in history. Income tax rates will increase for every taxpayer. The capital gains tax rate will climb 33%. Tax rates on dividends will increase by as much as 164%. The child tax credit will decrease by 50%. “Compound that with the return of the marriage penalty and it is enough to make anyone wake up screaming,” Regalia wrote.

Congress needs to act now to prevent this tax increase from happening. Extending the present tax rates would be a big boost to investors, businesses and consumers confidence. It would leave the income individuals and businesses have worked hard to earn at their disposal to make investments and create jobs that would without a doubt cause economic growth.

The Congressional Budget Office estimates that if Congress does not act to keep the present tax rates in place Americans will pay $2.6 trillion in higher taxes over the next ten years. Our citizens cannot afford that.

Without Congressional action successful small businesses will face tax increases of 11% minimum. Higher profit margin businesses will be facing tax rates of up to almost 40%, which is about half of the tax paying businesses.

Small businesses are not along in this nightmare, Regalia says. Investors who earn capital gains and dividend income will share the pain. Capital gains rates will go to 20% in 2011, an increase of 33%. The rates will increase again in 2013 to 23.8% due to the health care legislation, an increase of 59% over the present rates.

Dividend income will rise in 2011 from 15% to almost 40% and again in 2013 to as much as 43.4%. Older Americans will most likely get hurt the worst on the dividend tax rate increase as will those presently saving for retirement. IRS figures show that 71% of dividend income was earned by taxpayers age 55 and older. One third of the taxpayers with capital gains income were 65 and older.

Dr. Regalia wrote that increasing capital gains rates could adversely affect investment decisions because investors would avoid the higher taxes by not selling their assets. If they did this it would prevent the reallocation of capital to more efficient investments.

Raising dividend rates could also discourage investments especially for companies that employ Americans. It would also cause companies to use excessive debt financing which would cause greater economic instability. All taxpayers who receive dividends regardless of their income level could be hurt by potential lower dividend payouts.

Congress must act before the end of this calendar year and stop these tax hikes. This would give small businesses, who create a large portion of the nation’s jobs, confidence about the future. It would let them know that they will get a return on their investment and sweat equity. It would allow our senior citizens to worry about their grandchildren and not their tax bills. It would let Americans sleep peacefully at night knowing that tax hikes will not dampen their spirits or deter investments in our country’s future. If Congress acts now it will give us back the American dream.