TAXES AND ENTREPRENEURSHIP

A tax system with low rates and little or no progressivity provides the greatest incentives to encourage entrepreneurship, says the Fraser Institute.

Entrepreneurship is increasingly being recognized as a critical determinant of job creation, innovation, and productivity gains. An often-used indicator of entrepreneurship is business creation and growth. A number of studies have shown the impact of taxes on creation and growth of businesses:

• A decrease in the marginal tax rate levied on a sole proprietor from 50 percent to 33 percent would lead to an increase in revenues of about 28 percent.
• A 5 percent rise in marginal tax rates would reduce the proportion of entrepreneurs who make new capital investments 10.4 percent, as well as lowering mean capital outlays by 9.9 percent.

Overall, the evidence suggests that a simple tax system, characterized by little or no progressivity and low rates for numerous types of taxes, would provide the least amount of distortion in the economy and provide the greatest incentives to encourage entrepreneurship.

READ MORE