Question

How would income tax on companies affect the decision of an entrepreneur to invest? (Concentrate
on the main arguments and principles

Answer 1

Answer-Tax on companies do affect the decision of an entrepreneur who invest in the company. As per economic theory, progressive income taxes discourage entrepreneurship or investment. This is because, a tax takes away a major portion of income when an investor invests and makes profit, but does not pay money if in case the investor do not succeed or make losses. So, the entrepreneur is discouraged to take risk when there is an increase in income tax because higher marginal income tax discourages people from working or investing. A research by world bank found that a higher corporate tax implies a lower rate of new business entry/investment because countries with higher marginal personal income tax rates have lower rates of self-employment. It also discourages business expansion, job creation and lower economic growth. Increased tax rates affects existing wealthiest investors the most because business mostly depends upon the wealthiest entrepreneurs.