FreedomWorks Joins Coalition Letter on Dividend and Capital Gains Taxes

Dear Member of Congress:

On behalf of the millions of taxpayers, small businesses, shareholders, and senior citizens represented by our organizations, we urge you to make permanent the 15 percent tax rate for dividends and long term capital gains.

Dear Member of Congress:

On behalf of the millions of taxpayers, small businesses, shareholders, and senior citizens represented by our organizations, we urge you to make permanent the 15 percent tax rate for dividends and long term capital gains.

As you may know, Congress passed, and President Bush signed into law, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The central component to this legislation was a sharp reduction in the double tax placed on dividends and a cut in the long term capital gains rate. However, these provisions are set to expire December 31, 2008 and without making the provisions permanent taxpayers, investors, and businesses will not have the certainty to make needed investments in the U.S. economy.

In the two years since the tax cut passed, the changes in dividend and capital gains tax rates have been an unparalleled success. The Treasury Department estimates that the lower rates saved 24 million investors an average of $947 on their taxes. Nearly 7 million seniors with investment income will save more than $1,200 from the tax cut per year.

The tax cut was more than just savings for taxpayers. The sharp reductions in capital gains tax rates increased the after-tax return on equities and hence boosted the stock market. In the 38 months prior to passage of JGTRRA, the stock market lost 50 percent of its total market capitalization, which equated to a drop of $7 trillion of stock market wealth. However, once the legislation passed, total shareholder wealth climbed $2 trillion in the first 180 days of trading.

Furthermore, the tax reduction on dividends reversed the 25-year decline of dividend paying companies. Last year marked the second straight year that the number of dividend paying companies increased on the S&P 500, the first time this has occurred in 15 years. Moreover, the number of companies increasing their dividends is 55 percent higher than before the tax cut was put into place. More companies initiating and increasing dividends translates into more cash for shareholders. All told, shareholders of S&P 500 companies experienced a record increase of more than $50 billion in 2004 with an additional $50 billion expected in 2005.

However, firms and shareholders need certainty that these provisions will remain in place, which is vital to the success of the tax cuts. As the Congressional Budget Office recently explained:

“Because the lower rates expire at the end of 2008, investments made after that time will not benefit from them at all, and many investments made between 2003 and 2008 will benefit only partially. Hence, many of the gains in efficiency that could result from the effects of the lower rates on the allocation of investment will not be realized unless [the rates are] perceived to be permanent.”

Clearly, these provisions need to be made permanent now and we urge you to work to pass legislation to ensure the continued success of the tax cut. This will give taxpayers, investors, and businesses the certainty needed to make investments in the nation’s economy.

Sincerely,

Jim Martin, 60 Plus Association
Ryan Ellis, Alliance for Worker Freedom
Pat Callahan, American Association of Small Property Owners
David Keene, American Conservative Union
Daniel Clifton, American Shareholders Association
Michelle Korsmo, Americans for Prosperity
Grover Norquist, Americans for Tax Reform
Andrew Quinlan, Center for Freedom and Prosperity
Pat Toomey, Club for Growth
Thomas Schatz, Council for Citizens Against Government Waste
Steve Moore, Free Enterprise Fund
Matthew Kibbe, FreedomWorks
Bob McClure, The James Madison Institute
John Hood, John Locke Foundation
Lawrence Reed, Mackinac Center for Public Policy
Lew Uhler, National Tax Limitation Committee
John Berthoud, National Taxpayers Union
Marc Nichols, Oklahoma Center for Public Affairs
Karen Kerrigan, Small Business & Entrepreneurship Council
David Strom, Taxpayers League of Minnesota
Charlie Jarvis, USA Next