Americans Want to be Entrepreneurs: Will Government Policies Spoil Their Dreams?

By at 20 April, 2022, 9:48 am

by Raymond J. Keating –

Long before the pandemic hit, American entrepreneurship was in trouble. By a variety of measures, entrepreneurship had either declined or stagnated.

However, after the initial hit of the COVID pandemic in March and April of 2020, a key indicator of future entrepreneurship – that is, the number of business applications – moved up dramatically. And it has stayed well above pre-pandemic levels since then.

March 2022 Data

The latest monthly data on business applications from the U.S. Census Bureau – specifically, “business applications for tax IDs as indicated by applications for an Employer Identification Number (EIN) through filings of the IRS Form SS-4” – showed a decline for the month of March 2022.

Both total and high-propensity business applications (that is, business applications most likely to turn into businesses with employees) fell in March, and have been on a general decline since May of last year.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

However, as noted in the two charts above, monthly levels remains well above pre-pandemic levels.

The critical point here is the conversion of applications into actual businesses, whether those be one-person businesses, fulltime or as side gigs, or businesses with employees. Such conversion will depend on a wide range of factors, from those specific to each individual to economy-wide issues to policy matters.

Policy Climate Must Encourage Actual Business Formation

On the last point above, the current policy climate is serving as a negative in the entrepreneurial equation, including the push for higher personal income, capital gains and corporate income taxes, and the imposition and threat of increased regulatory burdens.

If policymakers are serious about wanting to see re-energized entrepreneurship in the U.S., then tax and regulatory policymaking needs to be turned completely around. Especially coming out of a pandemic, we shouldn’t be talking about and pushing increased tax and regulatory burdens, but instead, our elected officials need to be focused on substantial and permanent tax and regulatory relief. That’s how entrepreneurship, and the incentives for investing in new and expanding businesses, can be revitalized.

Indeed, it seems that more Americans want to be entrepreneurs. That’s good news that shouldn’t be spoiled by costly public policy mistakes.

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


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