This week, Congress adjourned until after the election, but not without a serious debate about maintaining current tax rates. As you may know, if Congress fails to act, the nation will see a $3.8 trillion tax increase on January 1, 2011. Many in Congress are concerned that the uncertainty about where tax levels will end up is causing businesses to hold off on investment and job growth.
When Democratic leaders announced that the House would adjourn without considering tax legislation, members on both sides of the aisle were concerned that we were neglecting our responsibility. In a dramatic vote on Wednesday afternoon, every Republican and 39 Democrats voted against adjournment. The resolution passed by only a single vote.
The House did end business on Wednesday night. This was a week earlier than had been planned at the beginning of the year. Congress also adjourned a week earlier over the summer. Democratic leadership chose to spend more time campaigning, and less time considering taxes and spending.
In fact, you may remember that this year was the first time that the House failed to pass a budget since the 1974 Budget Act. Without a plan for spending, the Appropriations Committee only managed to complete work on a handful of spending bills. The Senate has considered none of these bills.
For months now, I’ve stated my concern about how rising marginal tax rates could hurt small businesses and job growth. Unfortunately, the marginal rates aren’t the only taxes set to rise at the beginning of the year.
The Child Tax Credit will be slashed in half, falling from $1,000 per child to $500 per child. Millions of working families will see their tax bills rise, making it harder to provide for children.
The marriage penalty will return. Currently, the standard deduction for married couples is twice that of single filers. But starting in 2011, the standard deduction for married couples will be $9,750 while it will be $5,800 for single people.
Marriage has economic benefits both for couples and for children. In Pennsylvania, 36 percent of children in single-parent homes live in poverty. Only 5 percent of children in two-parent households live in poverty. The government can’t order people to get married, but it can encourage or discourage marriage through policies that have a real economic impact. With the percentage of Americans living in poverty greater than it’s been at any time since the 1960s, we should not be discouraging institutions that have a positive economic impact.
Major tax increases are also targeted at capital gains and dividends. These tax increases are likely to have wide-ranging effects that would hurt every American, whether or not they are directly subject to the tax. The American Council for Capital Formation estimates that these increases could lead to annual jobs losses of 231,000.
The top rate on capital gains is set to increase from 15 percent to 20 percent and the rate on qualified dividends would more than double, from 15 percent to 39.6 percent. More than 26 million taxpayers would pay an average of $1,240 more in 2011. One-third of those affected are senior citizens who are counting on investment earnings to support themselves.
Millionaires aren’t the only ones who pay these taxes. The accounting firm Ernst & Young estimates that 65 percent of dividends were on tax returns with income under $100,000. Over one-third were on returns with total income below $50,000 a year.
Tens of millions of Americans would be affected by increased taxes on capital because of the possible impact on the stock market. An estimate by Barclay’s Capital investment firm predicted that markets could fall by 8 percent because of the new taxes. This hurts every American with a 401(k) or other stock-based investments.
Congress failed to act this week. Clearly there is bipartisan support for extending all current tax rates. I hope that Speaker Pelosi listens to her own members.
Businesses are facing massive uncertainty about how much they will owe the federal government next year. We can provide reassurance that will encourage job growth. Without that assurance, businesses will continue to hold onto cash that could otherwise be used to get more Americans working. There’s no reason to wait any longer.
Rep. Joe Pitts represents Pennsylvania’s Sixteenth Congressional District.