National Entrepreneurship Week: 6 Key Points about Entrepreneurs, Policymaking and the U.S. Economy

By SBE Council at 14 February, 2023, 5:03 pm

by Raymond J. Keating –

It’s National Entrepreneurship Week – a time to appreciate the invaluable contributions that entrepreneurs make to our economy. No doubt, many positive declarations about entrepreneurs, and the small businesses they start, build and operate, will be served up by elected officials. Unfortunately, many of these same politicians will advocate and inflict policies that undermine entrepreneurship.

So, here are 6 quick, key points related to the economy, policy, entrepreneurship and small business that if elected officials kept in mind, then they would be less likely to impose measures that undermine entrepreneurship and economic growth.

Downstream effect of policy on entrepreneurship.

First, no individuals or businesses are isolated from the rest of the economy. Instead, our economy is deeply integrated and interrelated. Therefore, increasing tax and regulatory costs, for example, on certain individuals or businesses will have consequences not only for those directly burdened, or intended to be taxed or regulated, but for others far and wide.

Class warfare and entrepreneurship.

Second, when pushing for higher taxes on upper-income individuals, it must be understood that a solid majority of upper-income earners turn out to be entrepreneurs. For example, CNBC reported the following last year: “The 1% [in total wealth] own 57% of private companies, according to the Federal Reserve.” Edward Wolff, professor of economics at New York University, pointed out the following about the wealthiest: “Small business is really key when you talk about the sources of their wealth.”

Higher taxes drain capital needed to support entrepreneurship.

Third, higher taxes on wealthy individuals mean fewer resources and reduced incentives for the investment that is essential for entrepreneurial firms to flourish. Upper-income individuals have accumulated wealth so that they, in turn, are able to make investments or possess the savings that fund startup, expanding and/or innovating businesses.

Increased income taxes or imposing wealth taxes obviously mean fewer resources for and disincentivizing the market undertakings that create and expand wealth. Therefore, the effects of taxes on wealthy individuals are felt well up and down the income scale, including entrepreneurs who need funding to grow their businesses; workers who benefit from investments that generate jobs and enhance productivity, and therefore, boost wages and salaries; and the consumers who benefit from innovations and from businesses competing.

Regulation and unintended harm to entrepreneurship.

Fourth, the same goes for the effects of regulation. Consider the latest regulatory crusade against so-called “Big Tech.” Efforts to increase regulation on such companies translate into real harm for the small enterprises that benefit from the services provided by such businesses, that work with these tech firms, that might be acquired by such companies, or that seek to compete in and disrupt those industries.

Global market access boosts entrepreneurship.

Fifth, free trade is good news for entrepreneurs, and their businesses and employees. After all, free trade is about reducing governmental barriers – such as tariffs and quotas – so entrepreneurs, businesses and workers are free to seek expanded opportunities in the marketplace. In addition, it must be kept in mind that nearly all U.S. imports are inputs to domestic U.S. businesses. Therefore, when tariffs are imposed or increased, American businesses and their customers pay the price.

Pro-immigration policy is pro-entrepreneurship.

Sixth, a welcoming immigration policy is good news for entrepreneurship. For example, assorted studies show that the rate of entrepreneurship is higher among immigrants than among the native born up and down skill levels; and the rate of new entrepreneurs runs twice the rate of the native born. None of this should be surprising, given that leaving one’s country for another is an act heavy with risk and uncertainty, as is entrepreneurship. If you want more entrepreneurs, more immigrants have become a necessity.

So, if policymakers are serious about boosting entrepreneurship and the economy, then they should seriously consider economic interconnectedness and the ills of unintended consequences, and focus policymaking on tax relief, light regulation, free trade, and a welcoming immigration system.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.