Yesterday The Washington Free Beacon posted an article about the impact of corporate tax rates on entrepreneurship. The article notes that as the corporate tax rate increases, the number of start-up companies decreases.
The article reports:
“While there are many actions governments may take to affect entrepreneurship, few are as important or contentiously debated as the setting of tax policy,” the paper explains. “Taxes are viewed by many as the primary lever elected officials have at their disposal to change the business environment, promote growth, and encourage innovation.”
The study looked at counties that had changes to their state corporate, personal, or sales tax rates and how entrepreneurial activity was affected compared with those counties that had no changes to tax rates. The study defines entrepreneurs and startups as those that are two years old or younger.
“We find that increases in corporate tax rates have a statistically and economically significant negative effect on employment among startup firms,” the study explains. “Specifically, for every one percentage point increase in the corporate tax rate employment in startup firms declines 3.7 percent.”
…”Tax liability reduces economic profits, restricting the set of potential entrepreneurs whose likely profits exceed entry costs,” the study explains. “Tax policy affects labor demand via the dependence of firm-level labor demand on other production or revenue factors.”
The study also points to previous research that finds self-employment is affected by how complex the tax code is. Corporate tax rates reduce research and development and new product development.
If this study is accurate, we are going to have substantial economic growth in America as the corporate tax cut begins to take effect. Like him or not, President Trump is a businessman, and a rather successful one. I suspect he was already aware of the relationship between corporate taxes and start-up companies.
Just for the record, I was talking to someone last night who has been a Trump supporter since he announced his candidacy. She said something to me that I think is very astute–“Trump had to be the candidate–we needed a mud wrestler to fight the Democrats. The other Republican candidates wouldn’t do it.” That is an amazing (and true) statement.