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Business Band-Aid

The 1997 Taxpayer Relief Act offered small doses of relief.

Hailed as a major tax-reform package by both Congress and President Clinton, the Taxpayer Relief Act of 1997 promised to make long-overdue improvements to an ailing tax system. But three years later, it's clear the law made only a minor difference for businesses.

At least that's the consensus shared by most entrepreneurs and tax experts. Perhaps it's because the law is actually intended to provide more relief to middle-income parents with kids than to entrepreneurs running businesses. It created a special tax credit for each child parents have under age 16 and currently offers a number of education credits and deductions for college-bound kids.

Another major cornerstone of the law is a reduction in the top tax rate on capital gains for individuals, from 28 percent to 20 percent. (The reduction went to 10 percent for taxpayers in the lowest income bracket.) While it was the first time in 16 years that a new tax law provided some tax relief for both individuals and businesses, the size of that relief-some $95 billion in cuts-was relatively small compared to the 1981 tax law that provided $750 billion in tax reductions.

"Given the revenue constraints of a tax package that size, there's only so much that can be done," says Phil Wiesner, a partner in the Washington, DC, national tax office of KPMG. Even so, a handful of tax changes in the '97 law turned out to be steps in the right direction for businesses, he adds.

Joan Szabo is a writer in Great Falls, Virginia, who has reported on tax issues for more than 13 years.

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This article was originally published in the May 2000 print edition of Entrepreneur with the headline: Business Band-Aid.

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