Punitive Tax Structure Hurts Small Businesses During Economic Downturns

As most of you know, small businesses (less than 500 employees) are vital for job creation in the U.S. The figures vary depending on who's data you pull, but range from 51% to over 90%. The SBA (U.S. Small Business Administration) reports that since the mid-1990's, small businesses have created 60-80% of all new net jobs., and in 2005, that figure was 78.9%. Half the business start ups that employ people are still operating five years after they open. (Business Week).

But unless you own or have owned a small business, you may not realize how the government makes economic downturns significantly worse through their tax policies. If a small business makes profits, their tax advisor/CPA is likely to advise them to bonus it out, purchase equipment, or face the nasty consequences of losing a huge chunk of it to taxes when you file your annual tax return.

So, what does this lead to? Based on these short-sided tax regulations, do you think small businesses have a stash of cash saved up for the rainy days? NO! They spend it to avoid paying more in taxes. So what happens when a small biz hits a recession? They fail. 64.2% fail within the first 10 years (Business Week). Small businesses are told NOT to save that cash and get stuck with the taxes, so when times are tough, they have no nest egg to fall back on.

Since small businesses create the bulk of the jobs in the U.S., and over half fail within 10 years, imagine the negative impact on net job growth, especially in a recession. And our government wonders why layoffs are still going up and job creation is down, when we need job growth desperately now.

Small businesses need lower taxes, incentives to save for the rainy day, and less regulation. Let the horses run...