Cutting state personal income taxes won’t help small businesses create jobs and may harm state economies

- February 19, 2013
   

Only 2.7 percent of personal income tax payers are small business owners. Many high-income tax payers may receive profits from business investments, but this accounts for only a small percentage of their total income.

The Center on Budget and Policy Priorities has just released a report challenging the notion that cutting personal taxes is good for small businesses. Their key findings:

  • Only 2.7 percent of personal income tax payers are small business owners. Many high income tax payers may receive profits from business investments, but this accounts for only a small percentage of their total income;
  • State personal income tax cuts will not help small business owners create jobs and could harm their ability to contribute to economic growth;
  • Most small businesses don’t earn enough for tax cuts to generate enough income to hire new employees;
  • Most small business owners are not significant job creators and don’t plan to be.  Only 11 percent of taxpayers reporting business income run a company with employees other than the owner;
  • Small business hire based on product demand, not tax rates;
  • Bipartisan researchers have found no causal relationship between state personal income tax and the decision to start a business or begin operations in a tax-friendly state.

More direct alternatives to help small business succeed:

  • Specialized worker training;
  • Strengthening business and academic partnerships;
  • Improve education;
  • Develop modern transportation and infrastructure;
  • Promote public services that reduce business expenses and improve local quality of life.
Citing our new report,”Kasich tax proposal would further tilt tax system in favor of Ohio’s affluent,” CPBB notes that tax cut plans like the current one from Gov. Kasich would benefit the state’s top earners.
For example, 43 percent of the tax savings that would be provided by Ohio Governor Kasich’s proposal to cut each of the state’s current income tax rates by 20 percent would flow to the richest one percent of the state’s taxpayers, while only 13 percent would flow to the bottom 60 percent of taxpayers.
Ultimately, reducing revenue through tax cuts weakens the ability to invest in public infrastructure and programs businesses need to thrive. The full report is available on the CBPP website.
Print Friendly