The Connection Between High Taxes and Low Rates of Entrepreneurship

If you were to ask an entrepreneur what factors are most important to the success of his or her business, you're most likely to hear - finding and keeping the right employees, affordable health insurance, protecting intellectual property and cutting through typical government red tape.

Entrepreneurs who are not earning a profit may not be concerned yet about corporate income taxes. Those who do not own their own building may not be worrying about property taxes, although they are paying them indirectly through rent or lease payment.

In order to create a healthy environment for the entrepreneurs, it is important to keep local and state taxes down.

There are some legislatures who might panic at the thought of a $1.6 billion deficit and wonder if anyone would notice an increase in taxes in certain areas, which mind you, would help the economy.

Companies with a vested interest, small businesses and entrepreneurs will definitely notice the increase even if taxes aren't necessarily an issue for them.

Statistics shows that if state and local taxes were lower in certain states, namely Wisconsin, those states would attract more entrepreneurs.

In a study commissioned by the Small Business Administration, Donald Bruce (University of Tennessee) and John Deskins (Creighton University), found that higher top tax rates on individual income, higher sales tax rates and the existence of state-level inheritance or gift taxes all seemed to reduce a state's share of the national entrepreneurial stock. In their study, from 1989 to 2001, Wisconsin appeared to have had above taxes and below average entrepreneurial scores.

Even though state and local taxes are minor issues for Bruce and Deskins, they are quick to point out that states with larger state governments, as measured by state taxes per capita, seems to have lower entrepreneurial shares.

According to the Wisconsin Taxpayers Alliance, in 2006 the federal, state and local taxes amounted to 33.4 percent of personal income as apposed to 33.1 in 2005. While that may be a small increase, it shows that most citizens will not turn a blind eye to a tax increase.

From a budget balancing-perspective, increasing a major tax, like income tax or sales tax will not be a strong enough argument. The projected gap in what state agencies hope to spend and what revenues are available equals about six percent of the $26.4 billion the state expects to raise over the next two years. Doyle and lawmakers are working to keep costs down, revenue estimates rising, and a low deficit. The starting point of $1.6 billion is half of the anticipated deficit two years ago.

Cutting taxes ( http://accentaccounting.net ) on activities that encourage entrepreneurship is an area that both Doyle and lawmakers are in agreement on. One plan is increase tax credits available to angel and venture capital investors who invest in technologically advanced or high-growth start-up companies, and the other is, offering capital gains tax exclusion for investment gains that are re-invested into high-growth Wisconsin companies.

This may not be the first or last time you will hear the citizens of Wisconsin complaining about state and local taxes. But whatever you do, think smart. Smart budgeting and a growing economy (more entrepreneurs and more jobs) are two of the best remedies for the deficit.

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