Q. I hear about tax increases that will come if the 2001 and 2003 tax cuts aren't renewed by the end of the year. Who benefitted from those tax cuts?
A. The 2001 tax relief bill gets a lot of attention for the marginal tax rate cuts. Those cuts gave every income tax paying family in Iowa a tax break. In addition, the 2001 tax cuts created the first-ever 10-percent bracket for low-income workers and took six million taxpayers off the tax rolls entirely. It passed under my Chairmanship of the tax committee in the U.S. Senate and had broad-based bipartisan support. Today, the legislation must be extended to avoid one of the biggest tax increases in history from taking effect without a vote of Congress. And, again, there is bipartisan support in Congress for extending the tax relief.
Q. Did the legislation do anything else for taxpayers?
A. The bill created the first-ever deduction for college tuition, expanded and extended the deduction for interest on student loans, and expanded and made permanent tax-free college savings accounts (529s) for parents and other family members. The bill provided a 10-year extension of the tax-free treatment of employer-provided educational assistance, established a tax credit for bonds to improve and build schools, and expanded Education Savings Accounts. This education-related tax relief has proven its value to Iowa students in dollars and cents, year after year.
The 2001 tax cut bill also provided marriage penalty relief for families in which both spouses work and in families in which only one spouse works. It doubled the child tax credit from $500 to $1,000. It expanded the child tax credit to people who don't pay taxes and went beyond offsetting the Social Security payroll tax for lower income taxpayers.
It also established tax incentives for employers to provide child care to their employees and expanded the dependent care tax credit, which helps families faced with needing to provide care for children and spouses with special needs. The 2001 bill also extended and expanded the tax credit that encourages the adoption of kids who need homes.
Finally, the 2001 tax-cut legislation allowed Americans to save more money in tax-preferred retirement plans, provided a special incentive for low- and middle-income savers, and encouraged employers to offer pensions.
If the current leadership of Congress doesn't call a vote to extend this tax relief, a family of four with two kids who earn $50,000 today will see a $2,155 increase, on average, in its tax bill next year.
Q. What about the impact on the economy and the federal budget?
A. In 2003, I got through dividends and capital gains tax rate cuts to help spur economic growth after 9-11. The result was more revenue to the federal Treasury. The expanding economy helped reduce the annual budget deficit from $415 billion in 2004 to $167 billion in 2007. If this tax relief isn't extended, many seniors in Iowa who worked hard and saved for retirement with investments will lose the zero tax rate they have been paying on dividends and capital gains since 2003, if they're in the 10- and 15-percent marginal rate tax brackets.
If the looming tax increase is stopped, and tax law stays the same as it is today under the 2001 and 2003 tax cuts, the level of federal tax receipts will be about 19 percent of America's economy. So, even with current law, the level of federal tax receipts will exceed the historic norm of 18.2 percent. At the same time, long-term government spending is projected at 24 percent of gross domestic product. The problem isn't that people are taxed too little. It's that government spends too much.