Smith Faculty Opinion Article
The 30 Seconds Outlook
September 1, 2011
“The duty is daunting: reducing an unsustainable debt; restoring economic
growth and opportunity; establishing a limited and energetic government in
place of a bloated, meddling, and ineffective one; rebuilding America’s
defenses; and reestablishing respect for America around the world.”
- William Kristol, Weekly Standard, August 20, 2011
Scott Shane, The American, August 25, 2011, has provided a menu of the harm
Obama’s tax hikes would do to small business owners (and to his re-election).
Let us count the ways:
1. Taxes on small business will decrease business
starts, growth, hiring, and investment.
2. Progressive tax rates discourage business
formation by penalizing people for successful risk taking.
3. High tax rates reduce incentives for owner’s to
expand their businesses.
4. Higher tax rates increase the likelihood that
small business owners will cease operations.
5. A 10% decline in small business owners’
after-tax income is associated with a 8% decline in business revenues.
6. High taxes reduce small business hiring and capital investment.
7. A 10% decline in small business owners’
after-tax income reduces the probability of hiring additional employees by 12%
and reduces wages they pay typical workers by 4%.
8. Increasing marginal tax rates will fall heavily
on small business owners who make up one third of the highest marginal brackets.
9. Fifty percent of net positive business income
goes to tax payers in the highest marginal tax brackets.
10. Eliminating LIFO inventory accounting would
result in higher taxes for small business, thereby causing more businesses to
close.
11. Increasing capital gains taxes will diminish
entrepreneurial activity needed for capital formation.
12. Raising tax rates in poor politics because it
raises taxes on small businesses—“The American Dream.”
13. When tax rates increase, investors who provide
risk capital to entrepreneurs are encouraged to invest in tax-free bonds, rather
than financing growth opportunities.
14. Small business owners represent a major part of
the electorate with 60 million people---about 50% of the number that voted in
the last election.
15. Obama is unlikely to understand the economic
mistake in raising taxes on small business owners— but he certainly must realize
the political mistake.
John A. Haslem
