The Senate voted 54:44 Thursday on measures to extend until 2010 the 15% long-term tax rate on capital gains and dividends. Approved by the U.S. House of Representatives Wednesday, Washington-watchers expect President George W. Bush to sign the bill within days. First passed in 2003, Bush has cited the tax package as an important part of his administration's legacy. Initially, provisions surrounding capital gains and dividends were set to expire in 2008, a presidential election year.
The two-year extension alone is expected to save investors $49.4 billion, according to Standard and Poor's. By 2010, investors will have saved $149.7 billion, according to the New York ratings company.
Investment company trade organizations applauded the extension as a move to help kick-start economic growth, encourage savings and reduce unemployment.
Mark Lackritz, president of the Securities Industry Association, pointed to record tax receipts in recent years as an indication that these cuts help pump money back into the economy. He also said they have led to an unemployment rate of 4.7%, down significantly from 2003.
"This legislation, which we have strongly supported, will benefit the millions of shareholders who are striving to build savings for retirement, college and other long-term needs," said Paul Schott Stevens¸ president of the Investment Company Institute, in a statement.
Others have criticized the bill for awarding tax relief only to the wealthy, while failing to address deductions targeted to help working class families who have education and health care costs now, and no savings.
Richard Hunt, SIA senior vice president for Federal policy and Federal tax legislation, said that the bill helps economic growth for the nation overall, and that growth helps everyone. "We believe this is the crown jewel of the tax package," he said.