Tax Reform and Boosting Entrepreneurship

By at 14 November, 2017, 2:48 pm

Fighting for pro-growth tax changes during Global Entrepreneurship Week and National Entrepreneurship Month

by Raymond J. Keating-

It’s fitting that the battle to improve the way American businesses are taxed is now fully engaged. After all, November 13-19 is Global Entrepreneurship Week, and in the U.S., November is National Entrepreneurship Month.

Make no mistake, a central reason to undertake substantive, pro-growth tax changes should be to improve the tax climate in the U.S. for entrepreneurship. That is, to incentivize, encourage and reduce the costs of starting up, operating, owning and bearing the risks of a private business. Why? Quite simply, entrepreneurship is the key source for innovation, and for economic, productivity, income and job growth.

Tax Reform Central to U.S. Competitiveness and Boosting Entrepreneurship

A key competitive advantage for the U.S. in the global marketplace always has been our entrepreneurial edge. That is an advantage we cannot afford to lose.

Unfortunately, as noted in recent SBE Council analyses (see reports here and here), the United States is suffering from a dearth of entrepreneurship, no matter which measure of entrepreneurship is used. A reasonable assessment puts the U.S. at missing some 3.4 million businesses due to low levels of self-employment and employer firms. That translates into lost output, lost innovation, and lost jobs – today and in the future.

Making substantial and productive changes in the way businesses are taxed would be good news on the entrepreneurship front. For example, as currently being debated and voted on in Congress, reducing the corporate income tax rate from 35 percent to 20 percent, reducing the top personal income tax rate applied to non-C-Corp business profits from 39.6 percent to 25 percent in the House bill (as well as providing relief in the Senate bill), allowing for full expensing of capital expenditures, the expansion of Section 179 expensing, eliminating the Alternative Minimum Tax, and ending the death tax (among other changes) would enhance the returns on owning, operating and investing in businesses.

And make no mistake, this is mostly about small businesses. After all, most C-Corps are smaller businesses. Based on the latest Census Bureau data, 86 percent have less than 20 employees; 96.7 percent less than 100 workers; and 99.1 percent fewer than 500 workers.

Meanwhile, as for non-C-Corps, which represent roughly 95 percent of U.S. businesses, consider that 90 percent of S-Corp employer firms, for example, have fewer than 20 employees, 98.6 percent less than 100, and 99.8 percent fewer than 500 workers.

The Time for Tax Reform Has Arrived

In the end, if we want to see faster economic, income and employment growth, then we all should be concerned about sluggish entrepreneurship in the U.S. On the policy front, a major pro-entrepreneur step forward would mean implementing tax relief that reduces the tax burdens on starting up, operating and investing in businesses. We have the chance to make significant, positive tax changes right now. This opportunity must not be lost.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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