America’s fiscal health remains currently at the heart of most economic policy chatter. We are living in tight fiscal times. Congress has been focusing on reaching agreements on reducing spending and budget battles are expected to wage on throughout much of this year. Since balancing the budget is inseparable from tax policy, we take a quick look this week at how taxes shape incentives for entrepreneurs.
While I have yet to find a person that decided against starting a business because of unfavorable taxation, taxes can certainly act as an additional burden of risk-taking. Certain tax structures have been found to influence entrepreneurship negatively in research experiments. For example, in 2000, Glenn Hubbard and Bill Gentry found through tax records that higher progressivity lowers the probability of an individual choosing entrepreneurship over corporate employment. In 2001, Bob Carroll and co-authors found that entrepreneurial profits were lower in states with higher marginal tax rates. And in a recent Huffington Post article, Tim Kane explained that higher flat-rate taxes have been found to have no effect on entrepreneurial behavior, and argued in favor of adopting a flat tax with a relative high rate. In his blog post “Steeper Taxes, Fewer Entreps, Less Jobs,” Kane further suggests that the taxes entrepreneurs fear most are not corporate, but individual taxes (usually at the top marginal rate), since many of today´s startups are sole proprietorships or Limited Liability Companies (LLCs).
To read the full, original article click on this link: About Taxes and Entrepreneurship - Entrepreneurship.org
Author: Jonathan Ortmans
