close

Вход

Забыли?

вход по аккаунту

?

The Effects of Taxes on Entrepreneurial Activity A Presentation to the

код для вставкиСкачать
The Effects of Taxes
on Entrepreneurial Activity
A Presentation to the
President’s Advisory Panel on
Federal Tax Reform
Donald Bruce
March 8, 2005
Small Businesses are Vital to the
Economy
• According to the SBA, small businesses
are firms with less than 500 employees:
–
–
–
–
99.7% of all employers
Employ half of all private-sector employees
Pay 44.3% of the total payroll
Generate 60-80% of new jobs on average
(and almost all new jobs during recessions)
– Create more than half of non-farm private
GDP
Donald Bruce пЃі March 8, 2005
2
How are Small Businesses Taxed?
• Sole proprietors, most partnerships, and
many S corporations are taxed under the
individual income tax
• 16% of individual tax returns report
Schedule C sole proprietorship income
and 5% have income from a partnership
or S corporation
• Up to 80% of businesses pay tax
through the individual income tax
• Individual Income Tax Reform is
Small Business Tax Reform
Donald Bruce пЃі March 8, 2005
3
The Number of Schedule C
Filers is Growing
(2005 Entries are Estimates)
18%
25
# of Schedule C Returns
% of Returns with Schedule C
16%
20
14%
Millions
12%
15
10%
8%
10
6%
4%
5
2%
0%
0
1980
Donald Bruce пЃі March 8, 2005
1985
1990
1995
2000
2005*
4
Should Entrepreneurs be
Tax-Favored?
• Do small businesses create positive
spillover benefits (job creation and
contributions to economic growth)?
• Do liquidity constraints result in too little
entrepreneurial activity?
• Does risk deter entrepreneurship?
• Is the tax code relatively more complex
for entrepreneurs?
• Do taxes distort small business activity?
Donald Bruce пЃі March 8, 2005
5
Do Taxes Matter?
• In theory, the effect of tax rates is
ambiguous:
– On one hand, higher tax rates reduce the
after-tax return to entrepreneurial activity
– On the other hand, higher tax rates (with
loss offsets) compress the distribution of
after-tax returns, thereby reducing
entrepreneurial risk
– Incentives to evade or avoid taxes
contribute to the ambiguity
• This is inherently an empirical question
Donald Bruce пЃі March 8, 2005
6
What Makes an Entrepreneur?
• Unquantifiable “entrepreneurial spirit”
– No consensus on an appropriate measure
• Available proxies for entrepreneurship
– Survey responses: Are you self-employed?
– Tax return information
• Sole proprietorships (Schedule C)
• Partnerships and S corporations
• Rent and royalty income
Donald Bruce пЃі March 8, 2005
7
Taxes and Entrepreneurial Activity:
An Empirical Investigation by Donald Bruce and Tami Gurley
Question: Do tax rates affect small
business formation and survival?
We compare the tax rate an individual
would face as an entrepreneur with the
tax rate he or she would face in a wage
job and ask whether that tax difference
matters for behavior.
Donald Bruce пЃі March 8, 2005
8
Results:
Relative Tax Rates Matter
• Cutting relative tax rates in the
entrepreneurial sector (vis-Г -vis wage
employment) increases the probability of
entrepreneurial entry and survival
– Suggests that the leveling of the tax playing
field during the 1980s might have resulted in
lower rates of entrepreneurial entry and
survival than might have otherwise occurred
Donald Bruce пЃі March 8, 2005
9
Results:
Absolute Tax Rates Matter
• Reducing the tax rate an individual
expects to face as an entrepreneur
increases entrepreneurial activity
• Reducing the tax rate an individual
expects to face in a wage job decreases
entrepreneurial activity
• We find that the first effect is larger than
the second
– Suggests that across-the-board tax cuts could
increase entrepreneurial start-up and survival
Donald Bruce пЃі March 8, 2005
10
Results Echo Recent Findings by
Economists
• Carroll, Holtz-Eakin, Rider, and Rosen
(2000a, 2000b, and 2001)
– marginal tax rate increases reduce overall
firm growth (as measured by receipts),
investment expenditures, and the probability
of hiring employees
• Gentry and Hubbard (2000)
– probability of entry into self-employment
increases as tax rates become less
progressive; progressive rates serve as a
tax on success in self-employment
Donald Bruce пЃі March 8, 2005
11
Appendix A: Further Reading
Bruce, Donald. 2002. “Taxes and Entrepreneurial Endurance: Evidence from the
Self-Employed.” National Tax Journal 55(1): 5-24.
Bruce, Donald. 2000. “Effects of the United States Tax System on Transitions
Into Self-Employment.” Labour Economics 7(5): 545-574.
Bruce, Donald and Douglas Holtz-Eakin. 2001. “Who Are the Entrepreneurs?
Evidence from Taxpayer Data.” Journal of Entrepreneurial Finance and
Business Ventures 1(1): 1-10.
Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey S. Rosen. 2001.
“Personal Income Taxes and the Growth of Small Firms.” In James Poterba
(ed.), Tax Policy and the Economy, Vol. 15, Cambridge, MA: MIT Press.
Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey S. Rosen. 2000a.
“Entrepreneurs, Income Taxes, and Investment.” In Joel B. Slemrod (ed.),
Does Atlas Shrug? The Economic Consequences of Taxing the Rich, New
York: Russell Sage Foundation, pp. 427-455.
Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey S. Rosen. 2000b.
“Income Taxes and Entrepreneurs’ Use of Labor.” Journal of Labor
Economics 18(2): 324-351.
Cullen, Julie Berry, and Roger H. Gordon. 2002. “Taxes and Entrepreneurial
Activity: Theory and Evidence for the U.S.” NBER Working Paper No. 9015.
Gentry, William M. and R. Glenn Hubbard. 2000. “Tax Policy and Entrepreneurial
Entry.” American Economic Review 90(May): 283-287.
Schuetze, Herbert J. and Donald Bruce. Forthcoming. “Tax Policy and
Entrepreneurship.” Swedish Economic Policy Review, 11(2).
Donald Bruce пЃі March 8, 2005
12
Appendix B: Further Information
on Bruce/Gurley Study
• Approach: entrepreneurial transitions are modeled as
functions of post-transition expected tax rates in both
possible outcomes (entrepreneurship vs. a wage job)
– Taxes considered: federal and state income and payroll taxes
– We control for other factors to isolate the effects of taxes
• age, household size, region, access to capital, risk
attitudes (all at pre-transition values)
• Data: 12-year panel of federal individual income tax returns
–
–
–
–
–
University of Michigan Tax Panel, 1979-90
8,200 to 46,000 returns per year
6,000 returns present in all 12 years
We use only the representative sub-sample
Spans several major tax changes during a period in which tax
advantages for small businesses were gradually eroded
Donald Bruce пЃі March 8, 2005
13
Документ
Категория
Презентации
Просмотров
5
Размер файла
82 Кб
Теги
1/--страниц
Пожаловаться на содержимое документа