Jon Kyl, July 17, 2006

It is great news that the economy is growing at a torrid pace, the government is collecting record revenues as a result of pro-growth tax policies, and job creation continues to soar. But sometimes lost in the big picture is exactly what this all means for Arizonans - and what we need to know to continue this growth.

Many Americans may not know that the tax policies that are currently sustaining our healthy economy are set to expire in just four years. After 2010, several tax rates which were lowered in 2001 and 2003 will automatically jump back up if Congress doesn’t act to keep them in place.

Take the $1,000 per child tax credit. Beginning with the 2001 law, approximately a half million Arizonans qualified for this provision, and saw significant savings on their tax bills. For example, Mr. and Mrs. Smith, in Tucson, both work and have one child and earn a combined income of $40,000. As a result of the child tax credit and other provisions in the tax relief bills (which are also set to expire after 2010), the income tax owed by the Smiths in 2005 was reduced by over half (53 percent). But after 2010, these tax breaks will no longer be available to the Smiths, resulting in a massive tax increase.

The tax code generally taxes the income of married couples at a higher rate than it would if they were two single taxpayers. Tax changes enacted in 2001 eliminated the marriage penalty for low and middle income taxpayers and gave some other families relief. But like the increased child credit, this tax relief also expires at the end of 2010 - meaning that over half a million Arizonans will once again pay the full marriage penalty if Congress does not act.

All taxpayers (including 1.9 million Arizonans) have benefited from the tax relief packages of 2001 and 2003. Americans have responded to these lower rates by working harder and being more productive because the income they earn is taxed less. They’re able to see, save, and keep more of their hard-earned money. Over the last five years, productivity has grown at its fastest rate in nearly 40 years.

If current rates are allowed to expire, a family of four making $65,000 (the midpoint of income for all families) will see their tax bill increase over $2,000 (58 percent) in just one year; a single individual making $28,300 (median national income) would experience a 42 percent increase in income taxes; married couples with average income would experience a 12 percent tax penalty just for being married; and the nations’ seniors, for whom dividends and capital gains account for nearly a quarter of income, would experience an immediate 10 percent, and possibly 20 percent tax, on this income. As anyone can imagine, such increases would be catastrophic for many families.

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.

While the economy is getting stronger, with millions of new jobs and consistent growth, we need to do more to help people with the cost of living. For example, Congress must also pass small business health plans to make health insurance more affordable; stop tax increases and balance the budget within five years; decrease U.S. dependence on foreign oil and develop alternative energy sources; and raise income levels for every American by creating the best educated and trained workforce in the world.

Bottom line: the pro-growth tax policies we currently have in place are good for the economy and good for the American family - we need to keep it that way.

Senator Jon Kyl, a Republican, represents Arizona in the U.S. Senate. He serves on the Senate Judiciary Committee, the Finance Committee, and the Energy and Natural Resources Committee.