The Nobel Prize-winning economist Milton Friedman once said, “Nobody spends somebody else’s money as carefully as he spends his own.” At a time when economic indicators are signaling a slowdown, or possibly even a recession, we need to allow taxpayers to keep more of their income, rather than sending their hard-earned money to Washington to be spent by the government.

Last year, the cost of essential items, like food, gasoline, and home heating, soared. Texas families continue to feel the impact of a cooling economy every time they gas up their vehicles or make a trip to the grocery store. Climbing costs associated with these everyday necessities has resulted in the most significant jump in inflation in 17 years, with a 17.4 percent increase in energy costs, food costs up 4.9 percent, and a staggering 29.6 percent rise in gasoline prices. Early this year, oil briefly hit the long-dreaded milestone of $100 a barrel. High inflation coupled with a slowing economy is an ominous economic trend, last seen in the 1970s.

Many Texans are also grappling with a volatile housing market, in which home prices are falling and foreclosures are rising. In the financial sector, weakening credit markets are forcing some of the nation’s largest banks to take billions in write-downs. These write-downs are related, in part, to debt collateral backed by sub-prime mortgages. In response to ailing U.S. markets and their effects on the global economy, the Federal Reserve announced an emergency interest rate cut of 75 basis points, from 4.25 down to 3.5 percent, on Jan. 22– the sharpest one-day reduction in more than 10 years.

On Jan. 14, The New York Times reported that consumers are now more concerned with economic issues than any other challenge facing our country. President Bush called for action on a bipartisan stimulus plan on Jan. 18, and lawmakers on both sides of the aisle are rapidly reaching the consensus that we must work together to prevent a recession.

Swift action is needed to aid struggling Americans, raise consumer and investor confidence, and stimulate the economy.  Private and business investment are both critical to economic stability and growth, and maintaining low tax rates will help businesses invest more confidently, thereby producing jobs and benefits for hard-working Americans. Immediate tax rate cuts for low- and middle-income Americans would also help workers keep more of their earnings. Another short-term proposal is to issue every taxpayer a one-time tax rebate, which would help cash-strapped consumers pay their bills and provide for their families. Tax rebates, however, do not necessarily have lasting economic impact. If rebates aren’t spent productively, they accomplish little more than a redistribution of money from one group to another.

A long-term solution is needed to ensure economic solvency and to stimulate growth. Permanent tax relief should be a key component to a forward-looking economic strategy, allowing Americans, rather than the government, to keep their earnings. Tax relief enacted in 2001 and 2003 – including reductions to death taxes, capital gains, and small business and income taxes – is set to expire at the end of 2010. If these successful tax breaks are not made permanent, a single mom earning $30,000 a year could see her taxes rise almost 70 percent. Low-income elderly Americans could face a 155 percent tax increase. And 26 million small business owners could be hit with an average $4,000 tax hike.

As lawmakers and candidates look to ease Americans’ anxieties and reverse the economic downturn, it is critical that we adopt an expedient solution. Some national candidates have proposed stimulus packages that will increase government spending and raise taxes, but such short-sighted measures will only slow growth in the long-run and take more money out of the pockets of consumers. At the outset of this session of Congress, we must work together in a bipartisan way to do what is in the best interests of Americans and our economy, both today and into the future.

Sen. Hutchison is the Chairman of the Senate Republican Policy Committee.