If I Were President . . .

The Bush Plan

Bush has made taxes the centerpiece of his presidential campaign, pointing out that Americans now work more than four months per year on average to fund government at all levels. The Texas governor insists deep reductions are necessary to sustain the nation's record economic growth. He wants a $483 billion tax cut over five years, and as much as $1.2 trillion over 10 years. Under his plan, tax reductions would be financed exclusively out of the non-Social Security surplus.

Regarding Social Security, Bush supports legislation that would wall off the program's surplus from the rest of the budget. He has said he would reserve $2 trillion in excess Social Security revenues over the next decade to overhaul the retirement system. He says he'd also gradually reduce marginal income-tax rates, so taxpayers would receive an income-tax cut, and he would like to replace the current five-rate structure of 15, 28, 31, 36 and 39.6 percent with four lower rates of 10, 15, 25 and 33 percent.

In addition, Bush wants to provide marriage-penalty relief by allowing the lower-earning spouse of two-earner couples to deduct 10 percent of earnings up to $30,000, or a maximum deduction of $3,000. He would raise the threshold for phasing out the child tax credit from $110,000 to $200,000 for married couples and from $75,000 to $200,000 for single parents.

Bush says that his plan is geared toward helping lower- as well as middle-income people, especially families who are trying to get to the middle class. While his plan would help many people in the $20,000 income range, critics of his proposals claim that the large majority of tax cuts would go to the top 1 percent, or those earning more than $300,000 a year. He has also proposed extending the deduction for charitable contributions to some 80 million taxpayers who don't itemize. Under existing law, those who don't itemize on their tax returns are not able to take tax deductions for donations they make to charities and other nonprofit organizations.

In terms of education, Bush says he'd like to increase the existing annual contribution limit on savings accounts for education from $500 to $5,000 per child. Under current law, contributions are not deductible, but interest and dividends that build up are tax-free, and amounts withdrawn from the accounts under a certain set of circumstances aren't taxed.

As far as business is concerned, Bush supports an extension of the moratorium on Internet-sales taxation at least through 2006 and is opposed to taxes on Internet access. "This proposal would be a benefit for people in e-commerce," says Clint Stretch, director of tax policy for Deloitte & Touche in Washington, DC. Currently, a three-year moratorium is in place. A special commission set up by congress to devise a more uniform approach to taxing Internet sales recently called for a five year extension on the moratorium.

But there are drawbacks to continuing the moratorium for businesses not selling on the Internet, Stretch points out. "If you operate a brick-and-mortar establishment, a moratorium on Internet taxation is not all that helpful, because you're going to have sales-tax collection obligations in all the places where you have stores." In addition, he says, "Business would probably rather have a rational solution to this whole set of issues as opposed to just continuing with the moratorium."

That's not all that would benefit entrepreneurs: Bush would also like to make the research and development (R&D) tax credit a permanent part of the tax code. In addition, as a big plus for family business owners and very wealthy individuals, Bush proposes to phase out the federal estate tax by 2009. The effect of such a plan would allow all taxpayers, no matter how wealthy, to pass on their estates free of all federal taxes.

To date, Bush has yet to offer proposals that would reduce corporate taxes, says Stretch. But Bush has said he would veto any increase in corporate income-tax rates. At press time, he also has not yet offered proposals that would provide additional relief in capital-gains taxes, Stretch adds, which is a tax change a lot of entrepreneurs definitely want.

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This article was originally published in the August 2000 print edition of Entrepreneur with the headline: If I Were President . . ..

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