The key tax provisions in President Bush's budget proposal for 2006-07 fall into two categories - stopping destructive tax hikes that loom on the economic horizon, and building on other positive tax incentives.

Let's start with avoiding the tax increases. The tax cuts of 2001 and, in particular, 2003 have given a much-needed boost to the economy.  But that tax relief is temporary. 

For example, reductions in personal income tax rates are scheduled to expire in 2011.  Reductions in capital gains and dividend tax rates will disappear in 2009.  Expanded expensing of capital expenditures by small businesses will be gone in 2008.  And while the death tax disappears in 2010, it will come back to life in 2011 with a top tax rate of 60 percent.

So, many of us have been arguing to "make these tax cuts permanent."  But perhaps those terms are a bit off the mark.  Regarding what actually lies ahead for the economy, this really isn't about extending tax cuts.  It's about stopping a series of destructive tax increases.  Tax increases that would hit entrepreneurs, small businesses, investors and the economy hard.  Economic growth and job creation certainly would be restrained if these tax hikes were allowed.

So, the President is absolutely correct with the call in his budget to stop these tax increases.  Unfortunately, this issue has been lingering now for nearly three years.  As we get closer to the tax-hike trigger dates, uncertainty grows, and that takes a toll on the economy.  Congress needs to act quickly to terminate these economic threats.

Meanwhile, the President also pushes for additional tax relief that would help the entrepreneurial sector and the economy in general.  Expanded savings incentives, through Lifetime Savings Accounts and Retirement Savings Accounts, would boost the long-term financial well-being of individuals and families, while also expanding the pool of available capital for private investment.

President Bush also wants to further expand small business expensing levels. In 2003, the expensing level for small businesses was increased from $25,000 to $100,000, and indexed for inflation going forward.  Again, that is scheduled to fall back to $25,000 in 2008.  However, the President isn't just calling for making the higher expensing level permanent.  He proposes upping it to $200,000 starting in 2007 (indexed to inflation thereafter).  This obviously would be a big plus for small business investment.

And on the health care front, the President wisely seeks to expand the tax incentives applied to health savings accounts.  HSAs give consumers control over health care dollars deposited in tax-free accounts, while also being protected against large, unforeseen expenses through a traditional, high-deductible insurance plan that must accompany an HSA. 

The key HSA-related proposals from the Administration include premiums for HSA-compatible insurance being tax deductible if purchased outside the workplace; larger annual HSA deposits up to the maximum out-of-pocket exposure on the policy; leveling the playing field between individually-purchased and job-based health insurance through a tax credit equal to the amount of payroll taxes paid for both the premium cost and the HSA deposit; and for families with incomes under $25,000, a refundable tax credit of up to $3,000 to purchase HSA-compatible health insurance.

If our elected officials are serious about access to affordable health care, then bigger, more luxurious government programs are not the answer.  Instead, the real solution lies with providing the right incentives for the private market.  HSAs make perfect sense.

Given all these positive tax-based proposals, there are some ill-advised tax increases in the President's budget plan as well.  For example, a 0.2 percent unemployment insurance surtax is due to expire at the end of 2007.  But the President calls for extending it through 2012.  This tax hike would simply raise labor costs.  Also, an excise tax on coal is supposed to decline from $1.10 per ton of coal from underground mines and $0.55 per ton from surface mines to $0.50 and $0.25 per ton, respectively, at the end of 2013.  The budget proposal would extend the higher tax rates. 

Overall, the President is on the right track in pushing to stop looming, large tax hikes, while expanding pro-growth tax incentives.  Congress should get on board, while rejecting other tax increases and working to reduce the size of government in order to free up resources for more productive uses in the private sector.

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E-mail comments and questions about this or previous columns to Raymond J. Keating 
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.