Mark Cuban, billionaire owner of HDnet and the Dallas Mavericks, is calling for abolishment of all taxes on small businesses with 25 or fewer employees in the U.S. He says that small businesses of that size should be exempt from taxes of all kinds:
“If we really want to stimulate job creation in this country, take the same approach to small business with 25 or fewer employees that we take to Internet taxes. Outlaw them.
No taxes of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings
The only taxes they would collect and remit are sales taxes, the employee’s portion of payroll taxes and of course they would still file personal income taxes on their individual earnings.
Make this available only to individuals, and only for a single company (to prevent gaming the system by having multiple 25 employee and under companies)
The impact on the economy would be amazing and immediate. Those without jobs would be able to work for themselves, they would be able to join together and start companies. They would be able to take risks with far less capital. Sweat Equity would be all it takes to start a business.
Not only would we see hundreds of thousands of new businesses started seemingly overnight, with millions of new hires, but from those new businesses would come new ideas that hopefully would give us our next “Internet”, an engine for economic growth that super cedes today’s ideas.”
The idea of lowering taxes is certainly attractive. However, his plan would not have the intended effect of causing more startups, mainly because the majority of small business startups do not pay corporate taxes today. That’s not what’s holding startups back.
We know that 20.4 million (out of roughly 27 million) small businesses are single-person businesses. Most are sole proprietors or set up as LLCs or taking advantage of S-Corp status. They don’t pay separate corporate tax — income is passed through and taxed like individual personal earnings.
Also, many small businesses use independent contractors in the startup stage, instead of hiring employees, avoiding the payroll tax issue.
Corporate taxes and payroll taxes are in fact serious issues — but they are issues that companies address later on as the business is growing, not when you’re deciding whether to start a business.
While I doubt that Cuban’s plan would have the effect he hopes, of promoting a groundswell of startups, still I like the idea of lower taxes in general — and also less regulation of small business.
Taxes and regulatory burden are issues of serious concern for small business owners. The National Federation of Independent Businesses (NFIB) published a survey last month of the top problems and concerns facing small businesses. Out of the top 10 problems rated as most severe, half of them had to do with taxes and/or regulatory burden, including:
- Federal Taxes on Business Income
- Property Taxes (Real, Inventory, or Personal Property)
- Tax Complexity
- Unreasonable Government Regulations
- State Taxes on Business Income
To address these issues our lawmakers have to first address the underlying issue: the size of government. The bigger our government gets with more and more regulations, the more costly it becomes, and the more taxes that need to be collected to pay the costs. The first step is to get spending under control — then reduce paperwork and unnecessary regulations that interfere with business, and lower taxes for individuals as well as businesses.
Read also my other article about the size of government and the impact on small businesses in: Congratulations … You Have Now Worked Enough to Pay for Your Government.
Hat tip to Editor at BlawgReview for sending along the link to Cuban’s article.