The power to tax is
the power to destroy. Even Pharaoh, 3000 years ago, aware of what this wise saying. Unfortunately, it seems to have been forgotten by some of the more influential modern economists. But, what is destroyed? What is destroyed are economic incentives for business formation and growth.
With Congress and the White House talking about a stimulus package sporadically to spur economic growth, it is important to distinguish what tax policies will work and what is sheer puff and political business as usual (increase spending) disguised as economic stimulus package to. . With this in mind, you might say that this article is a short primer on understanding the growth aspects of tax policyTaxes, broadly speaking, can be categorized into two types of headings ? taxes on capital and taxes on labor. Since this article will be dealing with taxes on income, capital taxation would be identified with the corporate income tax. Similarly, a tax on labor is equivalent to the personal income tax schedule. Now the sixty-four thousand dollar question. Which one is more important in helping to stimulate economic and business growth?
As President Lincoln stated in one of early speeches as president, the tax on labor is of more importance than the tax on capital. Why? Economic growth is driven by net new business formation. Or, to put it another way ? the economy is driven briskly when everyone wants to be a business owner. When entrepreneurs (risk takers) to start enterprise, their business income tax is initially reported on the personal income tax schedule. As the business grows, the owners may incorporate and file using the corporate tax rate. (As a reminder, when individuals start businesses, they hire people. Businesses with less than 100 employees are responsible for 75% of the net new job growth. Net new business formation should be the goal of tax policy designed to stimulate economic growth.)Since the tax on labor is more important than the tax on capital, the top marginal income tax rate on labor should be less than the top corporate rate. Presently, the top corporate tax rate is 35%, while the top tax rate on labor is about 35%. If policymakers are serious about providing incentives for stimulating vibrant business growth, the top personal income tax rate should be reduced to less than 35%. To provide a real fillip to economic growth, the top personal income tax rate should be significantly below 35%. It was no accident that President Regan, in his second term, reduced the top individual rate to 28%. This was a true top rate that did not include any phaseout of deductions or any of that nonsense that has the perverse effect of increasing the marginal rate.
Economic policy makers, Whether they are in position to administrative or legislative , like to take the path of least resistance ? similar to electrons in a circuit. Their path of least resistance is to stimulate economic growth to increase spending. It does not work! (If it did, many of the major European economies would be booming by now. Instead they have been in the doghouse for the past ten years.) The money for their Increased spending is just sucked out of the private sector. The net effect is zero. Providing financial incentives for individuals to take immediate and significant business risks by reductions in the top marginal individual income tax rate is the best way to promote vibrant and sustained economic growth. id=?article-resource?> Sanford Kahn, Business Author / Speaker, has been a professional speaker for over 30 years to both the corporate and national trade and professional association markets. She is the host and producer of the popular Times mirror cable vision series ?Ask the Economist?. Mr. Kahn has authored many articles on the business impact of future economic trends. His most recent publication is The Great Economic Myths That Dominate Business & Our Lives. For more information please visit his web page at http://www.businessspeaker.biz .Find More Economic Articles
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Marzia Aloisio joined an artisan bakery called The Moody Baker in Alston in 2005 after moving to the North of England from London. In 2010 she and her business partners opened a sister shop in Barnard Castle, County Durham, and Marzia faced the challenge of starting up and running a company from scratch. This experience left her well-versed in the intricacies of running a small rural business: from the early stages of writing business plans, filling out grant applications, recruiting staff and financial planning, to growing an enterprise through product development, exploring new markets and building relationships with suppliers and clients. Marzia says, ?I have met with most of the difficulties of running a business in a rural area and learned to overcome them. As a partner in an artisan bakery I have been involved in both production and retail aspects of the food industry.? Part of that start-up process brought Marzia into contact with some extremely helpful mentors as she looked for funding and business support opportunities in the region: ?I met with people who really opened my eyes to different options and helped me to examine issues in more detail. Their knowledge also helped to make me aware of schemes that I could benefit from ? through The Rural Jobs Fund, for example, we were provided with a member of staff who stayed with us for several months. He had been long-term unemployed but became a fantastic addition to our team.? Having seen first-hand the impact that well-placed advice and guidance can have on an enterprise, Marzia is now focused on doing the same for others. She recently left The Moody Baker for a change of scene, saying, ?I am keen on pursuing a career in business advice services and I thought that the mentor training would give me some of the necessary skills and volunteering would provide a taste of the job. She is now actively looking for her first mentee, preferably a start-up that can directly benefit from her knowledge and experience: ?I?m passionate about the food industry, fresh organic produce and working with local suppliers so I?d like to help anyone who shares those values and could use my experience. I would like to work within the local entrepreneurial community and volunteering as a mentor would enable me to start that.?
