The remainder of the 111th Congress will be largely defined by one issue: taxes. With the 2001 and 2003 tax cuts set to expire at the end of the year, Americans are facing the largest tax hike in history. If Congress acts to prevent these tax increases, the economy will receive a much-needed injection of certainty. But if Congress lets tax relief lapse, 2011 will be another difficult year for American families and businesses.
Let's examine the implications of this pending tax hike. Marginal income tax rates will increase for every taxpayer. The capital gains tax rate will climb 33%. Dividend rates for stockholders will jump by as much as 164%. The child tax credit will be cut in half, and the marriage penalty will return.
Small businesses-our job creators-will be among those hardest hit by these tax increases. The top marginal income tax rate will grow to 39.6% from 35%. Compound that with the loss of certain itemized deductions and personal exemptions, and small businesses will face rates as high as 41.6%. Successful small businesses will be hit particularly hard-approximately half of the business income reported on tax returns in 2011 will be subject to the top two marginal rates.
For companies that employ Americans and keep our economy moving, raising dividend rates could discourage investment. Further, it could incentivize companies to use excessive debt financing, causing greater economic instability. All taxpayers who receive dividends, regardless of income level, could be hurt by potential lower dividend payouts.
Our economy is stumbling on the road to recovery. Nearly 1 in 10 Americans can't find work. If you include those who have given up looking or have settled for part-time work, that number jumps to nearly 1 in 5.
Things are bad, but if taxes go up they could get much worse.
Congress must act now to prevent this tax increase. By preserving current rates, lawmakers would boost investor, business, and consumer confidence by removing growth-killing uncertainty from tax policy. With more of their earnings available-and a better sense of what the future will bring-businesses and individuals will be able to make the purchases and investments that drive economic growth and create jobs.
If Congress does only one more thing before it adjourns this year, it must extend the tax relief passed in 2001 and 2003. By giving the business community tax certainty, Washington would be casting a vote of confidence for the economic prospects of the nation.
Tom Donohue is the President & CEO of the U.S. Chamber of Commerce.