Question

Question 8 [13]
How would income tax on companies affect the decision of an entrepreneur to invest? (Concentrate
on the main arguments and principles, and less on details of research and empirical evidence.)

Answer 1

The precise effect of tax rates on small business growth and job creation is frequently debated, particularly when tax rate changes are on the horizon. Politics also cloud this discussion, and analysts have yet to settle about just how high tax rates usually function in the minds of current and potential entrepreneurs.

Personal income taxes, capital gains taxes, and payroll taxes all leave less expendable capital to individual entrepreneurs. The higher the tax rate, the more money is taken from the entrepreneur's pockets, and into the government's hands. Hence, the theory holds that higher tax rates leave less resources for businessmen to reinvest in their enterprises, leading to less job creation. Some economists and politicians also theorize that potential entrepreneurs can entirely escape the creation of small business if they believe high tax rates will substantially eat into their profits.

While studies have shown that tax rates can influence job creation and entrepreneurial decision-making, some entrepreneurs believe that tax rates are not a matter of urgent concern for those who determine whether to start a business or hire new employees.

A more neutral tax code would increase incentives for all in the economy including entrepreneurs to work, save and invest. Removing tax barriers for entrepreneurs will increase the dynamism of America, thus making the tax code of America more fair, effective and easy for all taxpayers. Taxes affect the risks that entrepreneurs take, the incomes they earn and the fixed costs. The impact of the tax code on the entrepreneurial community should be seen by policymakers as a vehicle for accelerating economic growth and dynamism.