Big Tax Increase Looms

 

The owners of Art Craft Display Inc., in Lansing, Michigan, are trying to plan for the future-whether to open a new office, hire more staff, or buy more equipment. But the future is looking more and more uncertain for them and millions of other small business owners.

 

That's because tax cuts passed under President Bush in 2001 and 2003 are in danger of disappearing. In March, the House and Senate passed budget blueprints that would effectively raise taxes by as much as $683 billion over the next five years by allowing the majority of Bush's tax cuts to expire in 2010. The U.S. Chamber is fighting to make the tax cuts permanent and, short of that goal, will work to renew individual tax cuts as they expire.

 

"The federal tax savings over the past seven years have helped offset some of our state taxes and other unexpected business costs," says Barry Freed, who, along with brother and sister Wayne Rood and Jeannie Kapusto, is a stockholder of Art Craft Display, which specializes in trade show and exhibition rentals.

 

The Bush tax cuts helped Art Craft Display replace its fleet of 25 large trucks and open a new office in Detroit. They also made it easier for Rood and Kapusto to become owners of the company when their father, Bob Rood, passed away a few years ago. "They would have been hit hard by the estate tax if it wasn't for the Bush tax cuts," Freed said.

 

In 2002, the tax exemption for estates was raised from $675,000 to $1 million, thereby reducing the estate tax liability for 50-year-old Art Craft Display. By 2009, estates valued at $3.5 million or less will be exempt.

 

Prior to the 2001 tax cuts, businesses faced a top estate tax rate of up to 55%. Under the phaseout plan, the top rate fell to 45% in 2007, and the tax will be fully repealed in 2010. However, unless Congress acts, the estate tax reverts back to 2001 rates in 2011 for all estates valued at more than $1 million.

 

In addition to estate tax repeal, the Chamber is lobbying to permanently extend the following: alternative minimum tax (AMT) relief; enhanced Section 179 small business expensing; the 15% tax rate on capital gains and dividends; deductions for state and local general sales taxes; the research and experimentation (R&E) tax credit; tax-advantaged medical savings accounts; the 15-year depreciation for qualified restaurant and leasehold improvements; and the combined welfare-to-work and work opportunity tax credits.