If you listen to the politicians, you might think all would be right with the world if we just had more small businesses. There would be more innovation. More jobs. More entrepreneurship. More growth. If you sign on to this worldview -- as most of the public is inclined to do -- it naturally follows that you should be in favor of providing more tax relief to small businesses.
Of course, small businesses are important. By some estimates, they are about one-quarter of the whole economy and provide half of all jobs. But in justifying extra tax benefits, the question is whether there is something special about them. If not, the case for providing targeted tax relief falls apart. If not, small business tax breaks will not create jobs. In fact, they will do exactly the opposite.
There are several widely held misconceptions about small businesses that can mislead policymakers trying to develop tax policies that promote economic growth. In general, job creation is not a strength of small business. Tax incentives should be targeted to the subset of small businesses that are fast-growing and innovative. If Congress really wants to help all small businesses, its best course of action would be to reduce compliance costs.
View TaxAnalysts' Martin Sullivan's opinion in its entirety on TAX.com.
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