Say no to tax hike on investment income

Figures from 2008 show that the median household income of all the communities in Avon Township in Lake County was $74,348, compared with the statewide average of $56,235.

Those specific numbers have undoubtedly changed since then, but the story they tell about Avon Township remains the same. We're home to hardworking people who make decent incomes but we're not a big ZIP code for the super rich.

Yet, the people of Avon Township and the overall community will be hammered financially by a huge increase in taxes on income from capital gains and dividends that will hit Jan. 1 unless Congress moves to stop it. That's a prospect faced by middle class people across America, and our struggling economic recovery would absorb a major setback.

Promoters of the tax hike would defend it on the grounds that dividends and capital gains (which are just profits from the sale of stock) are income streams enjoyed primarily by already rich people who can afford to take the hit. This, to put it politely, is nonsense.

Knock on many doors in Lake County and you will find people whose financial security involves income from dividends and capital gains. They will be among the tens of millions of ordinary Americans whose 401(k) investments and pension plans depend on income from dividends and capital gains. Much of the future income they're counting on will be gobbled up by the federal government if this tax increase goes through.

A 2003 law, which set a 15 percent maximum on the taxation of dividends and capital gains, expires at the end of this year. If Congress does not take action to extend that law the maximum capital gains tax rate would increase by as much as 33 percent.

Tax increases on that scale in the face of a deep and stubborn recession are a prescription for an even deeper recession. The added tax burden would discourage corporate investment that's critical to creating new jobs even as Illinois' unemployment rate remains stuck in double digits. A prolonged recession and wider unemployment would mean decreased local tax revenue and tighten the financial squeeze on entities like Avon Township.

The most obvious victims of this tax increase would be senior citizens. A January study by the accounting and consulting firm Ernst & Young shows that of the 27 million tax returns qualifying for the 15 percent limit on dividend taxation, 61 percent were filed by taxpayers age 50 or older. And over 30 percent came from taxpayers 65 and older.

Older people and their financial advisers tend toward the relative stability of dividend-producing stocks. The one risk these seniors weren't counting on was the risk that their own government would essentially confiscate a big chunk of the income they believed would supplement their Social Security checks.

I don't think any member of Congress would stand up and vote for such a big tax increase in an economy like this one. The danger here is that if members of Congress do nothing, the country will automatically pay an unhealthy price. This shouldn't happen, nor should preserving the 15 percent limit on capital gains and dividends taxation become a partisan issue; not with key economic advisers from the Obama administration urging continuation of the 15 percent limit and avoidance of a monster tax hike. Our Illinois leaders in Congress must direct the way to stop these impending tax hikes on capital gains and dividends.

The super rich will always find exotic tax loopholes. That doesn't mean Congress should create a tax trap for the rest of us.

Sam Yingling is a small-business owner who has served as the Round Lake Area Chamber of Commerce president. He currently is Avon Township supervisor.