Everyone wants a vibrant economy, innovation, and job growth. Do lower tax rates result in more startups and job growth? Do higher tax rates have the opposite effect? Tim Kane in the Huffington Post argues "Cutting Taxes Will Boost Entrepreneurship".
There are strong opinions on both sides of this issue, but very few facts. Most of the people arguing about it are politicians who have never started or managed a real business. In the USA, Democrats think big government spending, redistribution of wealth, and higher taxes on the "rich" are the right approach. Republicans believe less government spending, less reguation, and lower taxes stimulate job growth.
The problem is our society needs elements of both approaches, but neither one is completely correct. In the political compromise we get the worst of both worlds. Gigantic budget deficits, runaway spending, minimal job growth, "lower" taxes on the rich, reckless business risks by some capitalists, and an unstable economy.
The good news is that no one in the startup world listens to politicians. No entrepreneur decides to start a company based on promises from Democrats or Republicans. And, my belief is no one decides to NOT start a company because the tax rate is 35% versus 30%. Nice theory, but in practice the last thing an entrepreneur is thinking about is taxes. There are dozens of other more important concerns than taxes. Of course at some point taxes DO become onerous and would disuade an entrepreneur, but we are no where near that point today.
Tim Kane argues lower taxes would be better, but introducing a flat tax might be the best compromise;
"Over the last couple of years, I've been conducting economic experiments to see if progressive taxes affected entrepreneurial behavior, and early (unpublished) results confirm the empirical studies, with a surprising twist: Making taxes more progressive (that is, raising tax rates on the rich while lowering them for everyone else) lowers the incentive for people to take risks that might make them rich. But the surprise was that higher flat-rate taxes had no effect on entrepreneurial behavior."
"The facts point to a solution sure to please no one. Taxing the rich will hurt the economy, but raising taxes on everyone won't. The implication is that Congress could adopt a flat tax with a relative high rate and actually enhance job creation while helping to balance the budget."
Personally, I have never met an entrepreneur that said "I would start a company if only the tax rates were lower". The barriers to starting a company are much more fundamental. Things like local zoning laws that don't allow you to start a company out of your house or garage. Or, government regulations like OSHA, reporting requirements like 401B, legal issues like patents and trademarks, and other frustrating government issues.
Federal, state, and local governments are NOT here to help you start or grow a business. They create all kinds of rules and regulations designed to protect citizens, assuming that "business" is always to blame. This quote from Tim Kane's article sums it up;
"Democrats historically look out for workers, while Republicans tend to look out for corporations. The problem is, entrepreneurs are neither and/or both at once."
There is no "business" versus "labor" in startups or small busnesses. They are all just people trying to build a better future. Entrepreneurs who work their butts off to earn $250K are not rich, and shouldn't be penalized with higher taxes. They work hard for every penny.
Tax rates should not be used as economic policy or social policy. Taxes should be a way to fund government requirements, not a social policy to redistribute wealth to those that aren't as successful.
If politicians want to stimulate the economy and job growth the best thing they can do is stop spending money they don't have, and leave entrepreneurs alone to do what they do best. The federal budget deficit is a real problem now. It has been growing for 30 years, but the last few years have been unbelievable and unsustainable. Take a look at this chart if you dare.
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