From the June 2006 issue of Investment Advisor • Subscribe!

Tax Cuts Extended

Both the House and Senate passed a $70 billion tax cut package last month that extends through 2010 a 15% tax rate on capital gains and dividends, and provides alternative minimum tax (AMT) relief to nearly 15 million middle-income taxpayers through 2006. President Bush was expected to sign the bill into law at press time. Meanwhile, Senate Majority Leader Bill Frist (R-Tennessee) said the Senate would take up in May the debate on repealing the death tax. The tax cut legislation also includes a provision that allows individuals, regardless of their income, to convert their traditional IRA to a Roth IRA come 2010.

Democrats have criticized the legislation as favoring the rich, but Mark Lackritz, president of the Securities Industry Association (SIA) hails the legislation as good news for economic growth, the economy, investors, and the securities industry. When the tax rates on capital gains and dividends were first cut in 2003, Lackritz told reporters on a recent conference call, the economy was stagnant, and growth was a little over 1% per year. Following passage of the tax cuts in 2003, economic growth picked up in the first quarter of 2003 to 8.4%, and since then it's averaged around 4%, he said. Since 2003, the country has added 5.4 million new jobs, and the unemployment rate has fallen to 4.7%, he said. "At the same time that the tax rates have declined, tax revenues from the government have gone up to record levels--in fiscal 2005, tax receipts were about $270 billion more than they were the previous year."

Lackritz added: "Not only have the tax cuts worked from 2003, [the cuts] lowered the cost of capital, they increased business investment, dividend payments to shareholders, and stimulated the economic growth."--Melanie Waddell

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