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Jul 21, 2017
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Information Station

Did you know that U.S. businesses are taxed at one of the highest rates in the developed world? How bad is it? And why should you care? Watch this short video to find out.

This video is part of a collaborative business and economics project with Job Creators Network and Information Station. To learn more, visit informationstation.org.

Small businesses are the country’s main job creators, constantly expanding and innovating. Over 56 million people work for small businesses.

  • America is home to more than 28 million small businesses that employ nearly 57 million workers.View Source
  • Although small businesses lack the market power of large companies, they make up for this with flexibility and speed of development, allowing them to innovate quickly.View Source
  • A study by the Small Business Administration found that during 2007-2009, small businesses produced 15 times more patents per employee when compared to large businesses.View Source
  • U.S. small businesses accounted for almost two-thirds of the net new jobs created between 1993 and 2013.View Source

The math is simple: the more taxes and regulations imposed on businesses, the fewer business startups. That means fewer jobs. 

  • Increasing business regulation and taxation correlates with fewer business startups.View Source
  • Largely due to overly burdensome regulations, startup activity is below historically normal levels.View Source
  • Manufacturing businesses with fewer than 50 employees pay 17% more per employee to conform to regulation than the average firm.View Source
  • WATCH: “How Regulation Hurts Small Business”View Source

Recent government taxation and regulation have disproportionately hurt small businesses, preventing them from creating much-needed jobs. 

  • From 2015 to 2016, the number of pages in the Federal Register related to final rules rose 56.5 percent — increasing from 24,694 pages to 38,652.View Source
  • Despite promises that Obamacare would help small businesses and significantly increase job creation by the self-employed, startup activity is still below historically normal levels.View Source
  • Manufacturing businesses with fewer than 50 employees pay 17% more per employee to conform to regulation than the average firm.View Source
  • WATCH: Small business owner Dean Mixon on how regulation harms his business.View Source

Why do big businesses often support more regulations? Because regulations hurt small businesses worse, discouraging competition. 

  • Large companies often support regulation for the strain it places on smaller competitors.View Source
  • Small businesses must spend time and money complying with regulation, not fighting it. Big businesses and trade associations spent over $716 million on lobbying in 2016.View Source
  • Examples include Enron supporting strict environmental protocols, and General Motors supporting clean air initiatives that boosted their profits.View Source
  • WATCH: “How Regulation Hurts Small Business”View Source

Small businesses simply can’t afford to comply with heavy regulation and lobby to get favorable legislation like large corporations can.

  • Small manufacturing firms face regulatory compliance costs that are 10 times higher on a per-employee basis than those faced by large firms.View Source
  • Small businesses must spend time and money complying with regulation, not fighting it. Big businesses and trade associations spent over $716 million on lobbying in 2016.View Source
  • Large companies often support regulation for the strain it places on smaller competitors.View Source
  • Examples include Enron supporting strict environmental protocols, and General Motors supporting clean air initiatives that boosted their profits.View Source
  • Government programs like the Export Import bank benefit multinational companies the most and often directly harm small businesses. Multinationals such as Boeing, GE, and Caterpillar received 75 percent of Ex-Im funding in 2013.View Source

Small businesses accounted for almost two-thirds of the net new jobs created in the U.S. between 1993 and 2013.

  • U.S. small businesses accounted for almost two-thirds of the net new jobs created between 1993 and 2013.View Source
  • America is home to more than 28 million small businesses that employ nearly 57 million workers.View Source
  • WATCH: “How Regulation Hurts Small Business”View Source

Overly burdensome regulation and taxation doesn’t only hurt small business owners—employees are negatively affected as well.

  • Even if small companies are exempt from some labor regulation, they can become barriers to hiring as the company attempts to grow.View Source
  • President Obama enacted a regulation giving workers more overtime. But even proponents of the rule admit that employers would offset overtime pay with base wage rates, resulting in no change. This would also make employees less flexible, requiring them to log their hours and removing control over when they work.View Source
  • WATCH: Hector Barreto on the burden of overtime regulations.View Source

Small businesses often outpace large companies when it comes to innovation. Overtaxing small businesses hurts us all.  

  • A study by the Small Business Administration found that during 2007-2009, small businesses produced 15 times more patents per employee when compared to large businesses.View Source
  • Although small businesses lack the market power of large companies, they make up for this with flexibility and speed of development, allowing them to innovate quickly.View Source
  • WATCH: “How Regulation Hurts Small Business”View Source

No matter where you come from, what your job is, or where you stand politically, you have to pay taxes. Uncle Sam needs taxpayer dollars to pay for things like schools, fire fighters, and the military.

There are all sorts of different taxes: income taxes, payroll taxes and sales taxes just to name a few. But individuals aren’t the only ones who pay taxes—businesses pay income taxes too.

Businesses that are set up as corporations pay taxes on their income at the US corporate tax rate of around 35 percent—one of the highest in the developed world. Countries like Ireland and Switzerland have corporate tax rates well under 25 percent, which can give companies based there a competitive advantage.

But there’s another taxed group that we’re forgetting…small businesses. There are 29 million of them in the US and they employ nearly 56 million people. That’s a total of 85 million people dependent on the success of small businesses!

Small businesses are most often set up as sole proprietorships, partnerships or another designation called an S-corp. But the money they make isn’t taxed at the corporate rate. The profits earned by these small businesses are “passed through” to the owner and counted as individual income on their personal tax return. That’s why you might hear small businesses referred to as “Pass-throughs.”

These entrepreneurs can pay tax rates as high as 40 percent not including additional state and local taxes, that means many American small businesses are being taxed at a higher rate than businesses anywhere in the world.

Why should you care? Because high taxes hurt small businesses ability to grow and expand, causing them to raise prices or even trim jobs to stay within their budget constraints.

Lowering taxes for small businesses or “pass-throughs” results in the growth of small businesses—allowing them to provide more jobs and boost the economy for everyone. After all two thirds of all new jobs come from small businesses and lowering taxes can have a big effect on the entire economy for all Americans.

So the next time you hear someone supporting an increase in tax rates on businesses, remember that very important group of small business owners and the 85 million people dependent on their success.

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