Tax Small Business To Keep Government From Shrinking?

Posted by Administrator | Posted in Misc | Posted on 27-06-2011-05-2008

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Last week the Secretary of the Treasury, Timothy Geithner, said that small businesses must be taxed more in order to keep government from shrinking.

He defended his comments by saying that only 3% of small businesses would see an increase in taxes, to which he was informed that those 3% created 64% of the new jobs in this country over the past 15 years. Further, the graph below from Heritage shows that 8% of small businesses pay 82% of all small business taxes.

This is a classic case of robbing Peter to pay Paul. The United States government may be the nation’s single largest employer, but according to the SBA, small businesses:

- Represent 99.7 percent of all employer firms.
- Employ just over half of all private sector employees.
- Pay 44 percent of total U.S. private payroll.
- Create more than half of the nonfarm private gross domestic product (GDP).
- Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.

Small businesses don’t have the political power that large enterprises do (including the Federal Government), but any policy that creates more impediments to small business success is sure to have a negative impact on the U.S. economy at large.

If the United States government needs to increase taxes on small businesses to finance its payroll, perhaps its payroll is too big. Politicians will essentially be shifting jobs away from the private sector in favor of the public sector. Given that private enterprise gets a greater return on the dollars it invests than the United States government does, it should be clear that policies like this one will hold back the economic recovery in the United States.

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