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In President George W. Bush's second term, business owners can expect a carry-over of his earlier tax themes: He'll push to make his income tax cuts permanent, pursue a permanent repeal of the estate tax, and back an expansion of health savings accounts.
The first two have a limited impact on small businesses, though. Indeed, about half of small companies will receive between $0 and $500 from the tax cuts enacted in 2003, according to the Center on Budget and Policy Priorities, a think tank in Washington, DC, while the estate tax repeal primarily benefits the wealthiest.
However, Bush's plan to help employers manage health insurance costs offers tax relief to a significantly larger group. He wants to give companies a refundable tax credit for contributing to their employees' health savings accounts, which allow people with high-deductible health plans to put aside money tax-free for medical needs. Health savings accounts are already popular among small businesses forced to carry high-deductible policies because of rising insurance costs. Currently, individual contributions are tax-deductible, while employer contributions are excluded from gross income and aren't taxed.
Congress has already extended Bush's 2003 tax-law change through 2007, permitting companies to write off as much as $100,000 annually in business purchases; previously, the yearly expensing limit was $25,000. Less certain is the fate of the first-year "bonus" depreciation allowance, which lets firms deduct half the cost of qualified capital investments, up from 30 percent previously. At press time, it was set to expire at the end of 2004, "and Bush has not supported extending it," says Chris Edwards, director of tax policy studies at the Cato Institute, a nonprofit public policy research foundation in Washington, DC. "But I think there will be a movement in the House to extend it."
Congressional lawmakers also took the lead role in crafting the recent corporate tax-cut bill, which offers $136 billion in tax breaks for manufacturers and other business groups, and cuts the corporate revenue-neutral tax rate to 32 percent for manufacturers. Bush signed the controversial tax measure into law with little fanfare before the presidential election. "People always assume that Republicans, every time they come to power, cut corporate taxes," Edwards observes. "In fact, other than this depreciation thing recently, taxes had not been cut since 1981."