Tuesday, April 14, 2009

Small Business and Taxes

Finally someone has something rational to say about small businesses and tax. <The Small-Business Myth - washingtonpost.com

In fact, nearly all small-business and family-farm estates are already shielded from having to pay estate tax. If the estate tax were kept at its current level, as President Obama advocates, only 430 business or farm estates would owe any tax whatsoever in 2011, according to an estimate by the Brookings Institution-Urban Institute Tax Policy Center. Moreover, it's not true that these estates would be forced to liquidate to come up with enough money to pay the estate tax. At current levels, 13 family farms and 41 family-owned businesses would not have had enough liquid assets to satisfy estate taxes in 2005, according to a study by the Congressional Budget Office. Even these would probably not have to be sold on account of a tax hit, because payments can be spread over a 14-year period.

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Opponents of raising top marginal tax rates argue that this small slice of taxpayers is nonetheless responsible for generating a disproportionate share of small-business income -- about a quarter of the total, according to the Tax Policy Center -- and that higher rates would discourage entrepreneurship. As much as that seems like a matter of common sense, the evidence is far from clear. A 2006 study by Donald Bruce and Mohammed Mohsin found that "the top income tax rate has no economically significant effect" on entrepreneurship and that "it would take a 50-percentage-point cut in the top income tax rate to generate a one-percentage-point change in entrepreneurial activity." By that measure, the increase of three to five percentage points proposed by Mr. Obama hardly seems like a small-business job killer.


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