On January 8, 2003, President Bush proposed to exempt dividends from personal tax and thus eliminate the double taxation that has existed since the inception of income tax in the US (1913). Under the Bush proposal capital gains will continue to be taxed, but the effective tax rate on them will decline. Companies that choose not to pay out dividends, but reinvest them instead, will be allowed to create a provision for future dividends that can then be used by investors to increase the cost base of their stock thus, effectively reducing the tax on capital gains. In May 2003, a temporary law was enacted reducing the tax on dividends and capital gains to 15%. If the Bush proposal does pass Congress, it would mean a significantly lower personal tax on equity distributions (i.e. dividends and capital gains). Many articles have been written on this proposal and its potential impacts on the US economy in general and the stock market in particular. It appears that the consensus among experts is that the Bush proposal would have a positive impact on the stock market, as rates of return before personal income tax required by investors would decline, leading to an increase in companies’ valuations. UBS Warburg in an article titled “What’s the Dividend Dividend,” dated January 10, 2003, makes the following statement: “A cut in the tax rate on dividends will not change companies’ after-tax earnings or cash flows. However, it does raise the intrinsic value of stocks by reducing the appropriate discount rate.” Credit Suisse/First Boston in an article tiled “The Bush Tax Proposal,” dated February 4, 2003, claims the following: “Based on the passage of the Bush proposal for eliminating personal taxes on dividends and including a step-up in the cost basis for capital gains, we calculate dramatically higher stock market appreciation... This potential appreciation due to an equity discount reduction.” The above leads to the inevitable question: how does the business valuation community reflect personal taxes in the development of the discount rate? When using the market comparables method we implicitly reflect future personal tax rates, as we utilize prices of publicly traded companies, which implicitly reflect current market expectations including expectations of future personal tax rates. However, when we use the discounted cash flow model (“DCF”) we generally do not use explicit tools to reflect future personal tax rates. It is hoped that this article will invite the business valuation community to debate this issue and eventually agree on whether we need to reflect personal taxes in our discounted cash flow models, and if “yes,” develop a consistent method to do so. For the purpose of this article, I am suggesting a potential way to achieve this goal. My suggestion is not meant to be the ultimate solution but may be a useful start.