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House Passes 3 Tax Cuts, Plans a 4th

Bill Thomas, left, and Roy Blunt and other House Republicans call tax cuts vital to the economy.
Bill Thomas, left, and Roy Blunt and other House Republicans call tax cuts vital to the economy. (By Melina Mara -- The Washington Post)

Debate will be considerably more rancorous today, when the House votes on a $56 billion tax package, the centerpiece of which would extend the 2003 cuts on the tax rates on dividends and capital gains through 2010. Those provisions alone would cost the Treasury $20.6 billion through 2010 and nearly $51 billion through 2015, according to the congressional Joint Committee on Taxation.

Some moderate Republicans have expressed misgivings about those cuts, which overwhelmingly benefit affluent investors, especially as Congress moves to cut programs for the poor in the name of deficit reduction. But House GOP leaders expressed confidence yesterday that the tax cuts will pass, saying that the cuts would add to the tax revenue by generating more economic growth.

"By cutting taxes, you grow the economy, and you generate an enhanced flow of revenues to the Treasury," said Rep. David Dreier (R-Calif.), chairman of the House Rules Committee.

Although the federal tax revenue has grown since the passage of the 2003 tax cuts -- from $1.9 trillion in 2004 to $2.1 trillion in 2005 -- the tax revenue measured against the size of the economy remains below the 2002 level and well below the level of 2001, when the first of Bush's five tax cuts was passed. "The argument that tax cuts will grow the economy and pay for themselves is very attractive, but it's just not true," MacGuineas said.

Today's vote on the capital gains and dividend tax cut extension promises to bring out the deficit-reduction rhetoric that was absent yesterday. In 2003, Congress lowered the tax rate on dividends to 15 percent from as high as 38.5 percent. The rate on most capital gains was lowered to 15 percent from 20 percent.

Democrats have long charged that the cuts overwhelmingly benefited the affluent. The liberal watchdog group Citizens for Tax Justice says that the richest 1 percent of Americans, with an average income of almost $1.3 million in 2009, would enjoy 53 percent of the value of the extension that year, while 78 percent would receive no benefit.

A recent study by economists at the Federal Reserve concluded that the dividend tax cut had no real impact on the stock market and prompted "only muted gain in total corporate payouts."

In contrast, Americans for Tax Reform maintains that dividend payouts among the largest companies have jumped 59 percent, while the number of firms offering dividends soared after the tax cuts.

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