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Small Businesses - Tax & Regulatory Reform

 
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PostPosted: Fri Jul 31, 2015 5:00 pm    Post subject: Small Businesses - Tax & Regulatory Reform Reply with quote

PeakTrader:

In this “creative-destruction” process, there’s too much destruction and too little creation.

Two important factors are the student debt boom and anti-small business tax & regulatory policies.

All big businesses start as small businesses and it has become harder to start and grow a business.

In “The Impact of Student Loan Debt on Small Business Formation by Brent W. Ambrose, Larry Cordell, and Shuwei Ma:”

“Small businesses are the backbone of the U.S. economy and account for approximately one-half of the private-sector economy and 99% of all businesses. To start a small business, individuals need access to capital. Given the importance of an entrepreneur’s personal debt capacity in financing a startup business, student loan debt, which is difficult to discharge via bankruptcy, can have lasting effects and may have an impact on the ability of future small business owners to raise capital.

The authors find a significant and economically meaningful negative correlation between changes in student loan debt and net business formation for the smallest group of small businesses, those employing one to four employees. This is important since these small businesses depend heavily on personal debt to finance new business formation. Based on the authors’ model, an increase of one standard deviation in student debt reduced the number of businesses with one to four employees by 14% on average between 2000 and 2010. The effect on larger firm formation decreased with firm size, which the authors interpret to mean that these firms have greater access to outside capital.”

Business startups hit a 30-year low
May 18th 2014

http://www.kansascity.com/news/business/article366997/Business-startups-hit-a-30-year-low.html

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Baffling, I agree, lack of capital for small businesses is a major problem.

Nonetheless, the anti-small business tax & regulatory environment has progressively worsened, particularly over the past few years.

The money, time, and effort to comply with more and more regulations are more costly to small businesses than large businesses.

And, taxes have become more progressive, from lower to middle income taxpayers, which doesn’t facilitate business start-ups.

It’s a vicious cycle. As it becomes harder to start and grow a business, it causes more people to become dependent on government and fewer businesses, which causes fewer people to start and grow a business.

Here’s a report: https://www.sba.gov/sites/default/files/The%20Impact%20of%20Regulatory%20Costs%20on%20Small%20Firms%20(Full)_0.pdf

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We needed to make the economy the top priority.

With appropriate tax and regulatory reforms, this depression, which added over $5 trillion of federal debt, would’ve been avoided and the economy would’ve been able to absorb a $15 an hour national minimum wage, to raise the labor force participation rate, create more taxpayers, and reduce spending on the unemployed.

The tax cuts were too small and too slow, because the up to $800 billion a year trade deficits, before the recession, represented Americans buying foreign goods and foreigners buying U.S. Treasury bonds. Not enough of those dollars were refunded to consumers to pay-down debt and allow the spending to go on.

Instead of piling on more regulations on an overregulated economy, which stifles rather than stimulates growth, we needed to remove and reduce some of the $2 trillion a year of federal regulations. When the economy actually recovers, then taxes can be raised with new regulations to slow the expansion to a sustainable rate.

Therefore, federal deficits would’ve been much smaller and the government could’ve replaced some student loans with student grants, for example.

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