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The President calls for making permanent recently enacted reductions in the tax rates on dividends and capital gains, as well as increases in the contribution limits for retirement and education savings vehicles. SIA played a significant role in advocating passage of these important measures and now strongly supports making these benefits permanent. Since the new tax rates went into effect, more than 700 companies announced increases in their dividend payments, and more than 100 companies began paying dividends to their shareholders for the first time.
"By making permanent these pro-investor, pro-growth tax changes, Congress can help to ensure that the current economic recovery continues," said SIA Chairman Richard E. Thornburgh, chief risk officer for Credit Suisse Group and a member of the Credit Suisse Group Executive Board. "Nearly half of all Americans invest in the capital markets. Cutting the taxes they pay on dividends and capital gains will encourage more investment to grow our economy and enhance the financial security of millions of Americans."
In addition to strengthening existing plans, the President's budget also calls for the creation of three new savings vehicles: Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs).
"These programs would further reduce the tax bias against saving and give all Americans accessible, easy-to-understand options for meeting their savings goals," said Thornburgh.
Last year, President Bush signed legislation that lowered the top tax rate on dividend income and capital gains to 15 percent through 2008. For taxpayers in the 10 and 15-percent brackets, the tax drops to five percent through 2007, and is eliminated altogether in 2008. The Presidents budget proposes making this tax relief permanent. Unless Congress acts, it will expire at year-end 2008 and all rates will return to their pre-2003 levels.
The President's budget also makes permanent increased contribution limits for IRAs and 401(k)s. These contributions caps are currently $3,000 for IRAs and $13,000 for 401(k)s, and are scheduled to increase to $5,000 in 2008 for IRAs, and $15,000 for 401(k)s in 2006. In 2010 the caps would return to their 2001 levels ($2,000 and $10,500). The Presidents budget would make these increases permanent and expand eligibility and contribution limits for "529" (a tax-deferred education savings program) and Coverdell Education Savings Account (another education savings vehicle, formerly known as an Education IRA) plans.
"More and more Americans are relying on these programs to prepare for retirement and locking the increases in the plans contribution limits is essential for their future financial security," said Thornburgh.
