Taxes: The Bush Tax Cuts and Small Business: What We Know

Would raising their taxes be a job-killer? ... Some research suggests that higher tax rates actually encourage small business formation. Why? Because these firms allow their owners to shelter lots of income, behavior that is more lucrative when rates are higher. Other research suggests that higher rates do retard investment and hiring by existing firms. Donald Bruce and Tami Gurley-Calvez, who study small business for the Hudson Institute, have written a nice review of all these issues.

While we are not certain about what higher taxes will mean for small business, we know these firms will suffer if they are unable to access capital. And to the degree that ever-greater government borrowing makes it harder for these firms to raise money, they and their employees will pay a price. That is the other consequence of keeping taxes low for high earners, which will cost nearly $700 billion over the next decade.

For more, see The Bush Tax Cuts and Small Business: What We Know by Howard Gleckman, August 4, 2010 at Tax Policy Center.