President Bush signed Wednesday, May 28, a $350 billion tax cut package that includes relief for individuals and small-business owners, helps preserve vital tax credit programs, and provides federal funds for cash-strapped state governments.

The new law increases the amount small-business owners may deduct immediately, or "expense," from $25,000 to $100,000, through 2007. The agreement also increases the temporary bonus depreciation write-off to 50 percent from 30 percent on equipment purchased after May 5, 2003, and before January 1, 2005. For individuals, the legislation accelerates to this year reductions in income tax brackets, which also may result in savings for small-business owners who report their business revenue to the IRS as personal income. In addition, the AIA worked with other allied organizations to fight back a Senate-passed provision that would have put an end to the earned-income exclusion for U.S. taxpayers who work abroad. The House and Senate conferees dropped the provision before the final vote.

Advocates of the new law also say the money that taxpayers save through dividend tax relief and individual tax reductions will help pump cash back into the nation's economy and create a better climate for business overall.

A little help for state governments
The U.S. House of Representatives and Senate also agreed to include $20 billion in state aid, $10 billion of which is earmarked for Medicaid, with the rest to be used at the states' discretion. States have been relying on increases in taxes and fees to pay for Medicaid and other cumbersome expenses. According to a recent NCSL survey, states are facing a collective $53.5 billion budget gap for fiscal 2004. The deficits have already led state legislatures to consider increases in taxes and fees on architecture and engineering services.

—Tracy F. Ostroff

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