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**Democratic Tax Increases, Part I**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people.  The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people.  Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**If the Republican Tax Relief is not extended,**

**what will happen when clocks strike midnight**

**on December 31, 2010?**

  ------------------------------ -------------------- --------------------
                                 **2010**             **2011**

  *The top tax rates move                             
  higher*:                                            

  **Ordinary Income...**         **35%**              **39.6%**

  **Capital Gains...**           **15%**              **20%**

  **Dividends...**               **15%**              **39.6%**

  **Estates...**                 **0%**               **55%**

  **Child Tax Credit...**        **\$1,000**          **\$500**

  **Lowest Tax Bracket...**      **10%**              **15%**
  ------------------------------ -------------------- --------------------

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**Democratic Tax Increases, Part II**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people.  The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people.  Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**The Child Tax Credit**

Republicans doubled the child tax credit to \$1,000 per child in
legislation that passed in 2001. Under the Democrat's budget, in 2011
the credit will revert to \$500 per child -- a tax increase of \$500 per
child for American families. The legislative intent of the child tax
credit was clear, "to reduce the individual income tax burden of
families with dependent children, better recognize the financial
responsibilities of raising them, and promote family values." What about
that do Democrats not support?

-   The Tax Foundation said of the child tax credit, "few tax measures
    in history have so quickly reduced the typical family's income tax
    burden, in many cases erasing it entirely." Economists with the same
    group estimate that increasing the child tax credit to \$1,000 took
    at least 5.8 million families off the tax rolls.

-   USDA annually estimates the cost of raising a child in the United
    States. In 2005, the cost was estimated as \$10,220 to \$11,290 per
    year for middle income families -- why would Democrats add another
    \$500 per child to that burden?

-   Failing to extend the larger tax credit would be more than a \$35
    billion a year tax increase on American families.

-   According to the Joint Committee on Taxation, 44 million children
    (27 million families) benefited from the accelerated increase in the
    child credit that passed in 2003.

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**Democratic Tax Increases,** **Part III**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people.  The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people.  Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**What is the Marriage Penalty?**

A "marriage penalty" occurs when a couple pays more income taxes filing
jointly than they would pay filing separately.  The problem stems from a
progressive rate structure where higher income leads to higher rates of
taxation. 

**How prevalent was the marriage penalty?**

Before the 2001 tax relief was enacted, using assumptions of typical
behavior, the Congressional Budget Office estimated that as many as 43
percent of couples had marriage penalties.

**Example from before the tax cuts:**

In 2001, the standard deductions were \$4,550 for single taxpayers and
\$7,600 for joint returns.  The lowest tax bracket (15 percent at the
time) applied to the first \$27,050 in taxable income for singles and
the first \$45,200 in taxable income for joint returns.

Marie and Boudreaux got married.  Both earned \$30,000 in 2001.  Had
they remained single, each could have claimed a \$4,550 standard
deduction and just slightly entered the next higher 28 percent tax
bracket.  However, by marrying, they had to use the standard deduction
for joint returns\--\$1,500 less than it would have been.  In addition,
by marrying and combining their incomes, Marie and Boudreaux paid more
of their income tax at the 28 percent rate.  Their taxes rose by \$424.
That was their "marriage penalty."

**2001 Tax Relief:**

The marriage penalty contradicts our values and our sense of fairness. 
The 2001 bill contained three provisions designed to reduce marriage
penalties in the tax code. 

1)  The standard deduction for married taxpayers filing jointly was set
    at twice the deduction of a single taxpayer.

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1)  For married taxpayers, the width of the 15 percent bracket was
    increased to twice the levels of that bracket for single taxpayers.

2)  The level of income at which the Earned Income Tax Credit is phased
    out for married taxpayers was increased.

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**Democratic Tax Increases, Part IV**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people. The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people. Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**How Taxing Pensions Hurts American Seniors:**

Prior to the 2003 tax cut, dividends were subject an individual income
tax of up to 38.6 percent, on top of corporate taxes up to 35 percent.
Among developed countries, only Japan had higher tax rates on investment
income. In 2003, the top individual tax rate on dividends was cut by
more than half, down to 15 percent, and starting this year there will be
no dividend tax at all for lower-income Americans. In addition, the
capital gains tax decreased, with the top rates on long-term capital
gains dropping from 20 and 10 percent down to 15 and 5 percent -- and
the 5 percent rate will drop to zero this year for those in the bottom
two tax brackets.

Because seniors often rely on income from investments, they have
benefited greatly from these lower taxes:

-   The Treasury Department has estimated that 8.5 million seniors saved
    an average of \$1,144 on their 2005 taxes as a result of the lower
    rates on dividends and long-term capital gains.

-   According to Tax Foundation analysis of IRS data, more than half of
    all taxpayers over the age of 65 received dividend income in 2004.
    That is double the national average for all taxpayers.

-   Seniors are similarly very reliant upon capital gains income. The
    same Tax Foundation report found that while nationally less than 13
    percent of taxpayers claimed capital gains income in 2004, that
    figure crosses 30 percent for taxpayers between the ages of 65 and
    74 and is more than 27 percent for those taxpayers over age 75.

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**Democratic Tax Increases,** **Part** **V**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people.  The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people.  Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**Dividend and Capital Gains Tax Cuts: Broad-Based Tax Relief**

Prior to the 2003 tax cut, dividends were subject to up to a 35 percent
corporate income tax and an individual income tax of up to 38.6 percent.
Among developed countries, only Japan had higher tax rates on investment
income. Today, the top individual tax rate on dividends has been cut by
more than half, down to 15 percent.

If Democrats fail to extend this tax relief the previous crushing rates
of taxation will return after 2010. The tax rate on dividends and
capital gains will be zero percent beginning this year for those in the
lowest two tax brackets, so the increase in 2011 would be a particularly
hard hit for millions of families.

-   According to the Treasury Department, 28 million families saved an
    average of almost \$1,000 each on their 2005 taxes as a result of
    the lower rates on dividends and long-term capital gains.

-   In 2005, there were more than 10 million tax "units" (families and
    individual filers) in the 10 percent and 15 percent tax brackets
    that benefited from the 5 percent rate on dividends and capital
    gains, reducing their taxes by an average of more than \$132 each

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-   1 in 5 people who benefit from the lowered rate on capital gains
    have incomes below \$50,000. 1 in 4 people who benefit from the
    lowered rate on dividends have incomes below \$50,000.

-   5.4 million Americans who earn less than \$50,000 a year have
    received dividend tax relief, and 2.4 million people earning less
    than \$50,000 benefited from capital gains tax relief.

-   58 percent of people who have benefited from capital gains tax cuts
    earn less than \$100,000 a year. That number is 59 percent for
    dividend tax cuts.

![](media/image1.jpeg){width="5.99375in"
height="1.0576388888888888in"}**Democratic Tax Increases, Part VI**

*This week, House Democrats will* *adopt* *a budget that will begin to
spell out how they will increase taxes on the American people.  The tax
relief that Republicans have enacted over the past six years has led to
a booming economy, low unemployment, and substantial savings for the
American people.  Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**How Estate Taxes Hurt American Families:**

Prior to the Economic Growth and Tax Relief Reconciliation Act of 2001,
a family wishing to pass along a family farm or small business to the
next generation faced federal estate taxes (also called "the death tax")
of up to 55 percent. Thanks to the 2001 tax cut, the estate taxes will
be completely eliminated in 2010. 

But if Democrats fail to extend that tax cut, the rate will return to 55
percent in 2011.  It sounds crazy, but it's true: Under current law, if
a small business owner dies on December 31^st^, 2010, the owner's family
will able to carry on the business without paying additional taxes. But
if the owner lingers on through the night and dies on January 1, 2011,
the family could owe over half the value of the business to the federal
government in taxes.

            Democrats should not choose to embrace this policy of
increasing taxes when families are most vulnerable:

-   Unless they extend the death tax relief, Democrats will be saddling
    our economy with a \$1.35 trillion tax hike.

-   The death tax falls particularly hard on small businesses - the
    backbone of our economy.  In an NFIB survey, 89 percent of small
    business owners favored permanent repeal of the death tax.

-   In addition to being unjust, the death tax is inefficient. In June
    of 2003, the Joint Economic Committee reported on the high
    compliance costs of the tax. Specifically, the JEC found that, "for
    every \$1 removed from the economy to pay estate taxes, another \$1
    is wasted in order to comply with or legally avoid the tax." And, in
    2004, a Heritage Foundation study found that "the death tax may cost
    the government and taxpayers more in administrative and compliance
    fees that it raises in revenue."

Family-owned small businesses and farms are a vital part of the fabric
of our communities.  Policymakers should remember the strength and
resilience of these enterprises, and the danger posed by the return of
the death tax. 

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**Democratic Tax Increases, Part VII**

*This week, House Democrats will adopt a budget that will begin to spell
out how they will increase taxes on the American people. The tax relief
that Republicans have enacted over the past six years has led to a
booming economy, low unemployment, and substantial savings for the
American people. Democratic plans to raise taxes will hurt American
seniors, families, and our economy as a whole.*

**How The 10-Percent Tax Rate Helps American Families:**

Prior to 2001, the lowest federal income tax rate was 15 percent. The
Economic Growth and Tax Reconciliation Act that year created a new 10
percent rate, which for 2007 covers the first \$7,825 of income for
singles and \$15,650 of income for married couples filing jointly. The
result has been lower federal taxes for millions of American families.
But if the Democrats do not extend the 10 percent tax rate, taxpayers
will see a substantial increase in their taxes after 2010.

Millions of Americans benefit from the 10 percent rate. In 2005 (the
last year for which IRS data is available):

-   Over **100 million returns** had taxable income attributable to the
    10 percent tax bracket.

-   Over 25 million returns had ***ALL*** of their ordinary income
    attributed to the 10 percent bracket. That is **one quarter** of all
    returns with taxable income.

-   Over **40 percent of head of household returns** with taxable income
    had all of their ordinary income subject to the 10 percent tax
    bracket.

**Failing to extend the lower rate will lead to immediate higher taxes
for American families. For example:**

The fictitious Mr. and Mrs. Jack Widget make and sell widgets and had
gross income of \$29,500 in 2006. As joint filers, they claim a standard
deduction of \$10,300 and claim \$6,600 in exemptions, leaving them
\$12,600 in taxable income. That income is taxed at 10 percent and they
pay \$1,260 in taxes. Without the 10 percent bracket, the tax rate would
be 15 percent and their tax bill be \$1,890 -- a tax increase of \$630.

The Widget family competes with the equally fictitious Gizmo family in
the gadget business. The Gizmo family makes a better product and their
gross income was \$52,000 in 2006. They have two children. As joint
filers, they claim a standard deduction of \$10,300. With two children
the Gizmos claim \$13,200 in exemptions, making their taxable income
\$28,500. Their tax is \$3,520, but with two children they can claim
\$2,000 in child tax credits, making their final tax liability \$1, 520.
Without the 10 percent bracket, their tax bill would be \$2,275 -- a tax
increase of \$755.

*For the most up-to-date and comprehensive information the Democratic
Tax Increases, please visit:*
<http://republicans.waysandmeans.house.gov/issues/democratictaxincrease.aspx>