• Estate Tax Relief, Pension Reform In New Tax Law

• NASE Makes Key Contacts At Open House

Estate Tax Relief, Pension Reform Included In New Tax Law

Small business realized a definitive legislative victory last Thursday when President George W. Bush signed the "Economic Growth and Tax Relief Reconciliation Act of 2001" (H.R. 1836). The new law provides a $1.35 trillion tax cut through 2010 -- the most extensive tax cut in a generation.

For small-business owners, this means a significant reduction in Estate Taxes, which will now be phased out by 2010. Beginning next year, the top tax rate will be reduced from 55 percent to 50 percent. The $675,000 exemption will be increased to $1 million next year, $1.5 million in 2004, $2 million in 2006 and $3.5 million in 2009. The increased exemption means that even more self-employed individuals will not be subject to the Estate Tax. As President Bush stated, "Tax relief makes the code more fair for small businesses and farmers and individuals by eliminating the death tax. Over the long haul, tax relief will encourage work and innovation. It will allow American workers to save more on their pension plan or individual retirement accounts."

The new law also includes pension reform provisions that gradually increase the limit on annual contributions to traditional and Roth IRAs from $2,000 to $5,000. The limit will be raised to $3,000 in 2002, $4,000 in 2005 and $5,000 in 2008. After 2008, the limits on IRA contributions will increase with inflation in $500 increments. A "catch-up" provision increases the amount individuals ages 50 and older are allowed to contribute by $500 in 2002 and additional $500 increments in 2003, 2004, 2005 and 2006.

It also increases the annual employee contribution limits on tax-deferred defined-contribution plans, including:

• SIMPLE plans (used by small businesses) from $6,500 to $7,000 in 2002, $8,000 in 2003, $9, 000 in 2004 and $10,000 in 2005, with annual adjustments for inflation in $500 increments thereafter.

• 401(k) plans (used by private companies and some small businesses) from $10,500 to $15,000 over five years, with annual adjustments for inflation in $500 increments thereafter;

In addition this law lowers individual income tax rates, providing tax relief to millions of Americans. The final bill creates a new 10-percent regular income tax bracket and phases down over six years the current income tax rates of 28, 31, 36 and 39.6 percent to 25, 28, 33 and 35 percent, effective after June 30, 2001. "A year ago, tax relief was said to be a political impossibility. Six months ago, it was supposed to be a political liability. Today, it becomes reality. It becomes reality because of the bipartisan leadership of the members of the United States Congress," remarked President Bush at the bill signing ceremony in the White House.

The NASE supports the "Economic Growth and Tax Relief Reconciliation Act of 2001" and is pleased to have such a wide sweeping tax relief packaged signed into law. However, the NASE continues to advocate for further tax relief for small business and the self-employed as outlined in the "Small Business Works Act" (S. 189) and the "Small Employer Tax Relief Act" (H.R. 1037). These bills include many provisions that correspond directly with the legislative priorities of the NASE, including an increase in the business meal deduction and the acceleration of the 100 percent deductibility of health insurance premiums. These and other measures are greatly needed to promote economic growth and success.

NASE Makes Key Contacts At Open House

The NASE is always diligently at work to ensure the voice of the self-employed is heard in our nation’s capitol. To succeed in this endeavor, the NASE is continually seeking new opportunities to reach influential people in Washington, D.C. As part of this initiative, the NASE held a tremendously successful open house last Friday, June 8. NASE President Robert Hughes welcomed groups such as the SBA Office of Advocacy, the U.S. Chamber of Commerce, National Small Business United, and staff of the House and Senate Small Business Committees. Attendees were introduced to the new director of government affairs and toured the new legislative offices in Washington.

The NASE was also pleased to welcome NASE Members Mr. and Mrs. Steven Killpatrick to the Legislative Office.