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An Anniversary of Growth

By Jon Kyl

At a time when the stock market is hitting all-time record highs, it's interesting to note that the month of May also marks the anniversary of the Republican pro-growth tax policies on capital gains and dividends.

Four years ago this month, the Jobs and Growth Tax Relief Reconciliation Act of 2003 was enacted into law. Among other tax policy changes, it lowered the tax rates on capital gains and dividends to 15 percent (five percent for lower income taxpayers, falling to zero percent in 2008 to 2010).

Since this law went into effect, our economy has grown at a tremendous pace, an average quarterly rate of 3.5 percent, compared to a lagging 1.1 percent in the two years before this legislation was enacted. Since August 2003, job creation has soared, with our economy creating more than 7.8 million jobs, and unemployment dropping to 4.5 percent (from 6.1 percent in August 2003).

Americans are taking advantage of the lowered tax rates, and over half of all Americans are investing. Even investors who only hold stock for retirement are benefiting as market values have risen by 40 percent in response to the lower rates. Interestingly, almost two-thirds of those who have benefited from rate reductions have incomes under $100,000.

Keeping rates low on dividends also has a direct impact on our nation's seniors, many of whom rely on dividend investments for a quarter of their income. And also consider homeowners, who are directly affected by the rates on capital gains -- especially those middle-income families who live in high-cost home markets. When they sell their home, any amount beyond the exemption amount ($250,000 for an individual, and $500,000 for a couple) is subject to the capital gains tax.

The strong economic growth produced by the pro-growth Republican tax policies has also significantly increased revenue to the federal government. Since the 2003 tax relief was implemented, tax receipts to the federal government have risen nearly 35 percent. Tax revenues in FY2005 were the largest in our history. This strong revenue increase has helped drive down the deficit, which has declined by $165 billion over the past two years. In fact, strong revenue growth helped the government cut the deficit in half three years ahead of the President's schedule.

After 2010, however, all of this good news may come to an end because the law that produced these pro-growth policies will "sunset," and tax rates will return to their previous levels -- marking the largest tax increase in our nation's history.

I recently introduced a legislative package that would prevent these impending tax increases. It would extend all of the tax relief initiatives, including the rates on capital gains and dividends, as well as other 2001 and 2003 tax changes.

Unless we want to return to the days of economic stagnation, deficit spending, and rising unemployment, we need to ensure that these provisions, along with many others, do not expire. The bottom line is that the pro-growth tax policies we currently have in place are good for the economy and good for American families. I hope we can swiftly approve legislation to make the tax policies permanent.

Sen. Kyl serves on the Senate Finance and Judiciary committees and chairs the Senate Republican Conference. Visit his website at

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