Kerry’s Tax Hikes Would Savage Small Business Start Ups
Matt Michel
April 26, 2004
John Kerry wants to raise top marginal tax rates. This would be devastating for small business formation, job growth, and ultimately, tax collections at all levels of government.
I know. I operate a fast growth company that exists only because a few dozen well-heeled investors had a little excess income and the faith to risk it funding a start-up. Economically, their wealth has been multiplied to the benefit of our customers, employees, suppliers, the economy, and the government at all levels. Only the investors have yet to benefit.
Government collects more taxes when investors keep and invest their money than when it is siphoned off through usurious tax rates. If Kerry wins and raises marginal tax rates, less money will flow to start-ups like mine. Less will get multiplied.
Since my company was launched in the fall of 2002, we have hired employees and pay our share of their payroll taxes. Out of their salaries, the employees pay income taxes and their share of payroll taxes. They pay property taxes on the homes they own and sales taxes on the merchandise they buy.
We utilize contract programmers, web designers, attorneys, and a CPA, resulting in a range of local, state, and federal taxes. We pay taxes on leased vehicles and rent a building, covering the owner’s property taxes. We pay the Gore tax on telecommunications and taxes through the gas and electric utilities. We pay taxes to the FAA and at the gas pump every time we travel. Every time we move, we’re taxed. And we’re moving fast.
We stimulate the local economy through sales taxes when we purchase computers, software, furniture, office supplies, and on and on. This economic stimulus will only increase with time.
The direct tax impact is a pittance of our total tax impact. Our mission is to help service contractors improve their business and financial performance. We are doing that today for hundreds and hundreds of companies. Long term, our success will result in thousands of small businesses paying more taxes, hiring more people, and directly stimulating the economy through greater spending.
Is it better to allow the affluent to keep more of their money and invest it in ventures like mine or allow bureaucrats to make the decisions? Tax and spend Democrats will claim it’s “fairer.” Phooey.
So far, the investors in my venture haven’t seen a dime in return. Their investment is illiquid and cannot be withdrawn for immediate need. To risk capital in a start-up, an investor must have excess.
Despite our early success, a future payoff for our investors is far from assured. We’ve already spawned imitators, including not-for-profits, who pay fewer taxes and do not need to generate a return for investors.
If we succeed, the government will take its cut. If we fail, it will not offset investor loss. The government never bears the risk of entrepreneurial activities, yet it always benefits from the fruits of entrepreneurial success. Is that fair?
While angel investors clearly seek a return, investing in a start-up is largely an act of faith. Only affluent individuals are willing to express faith in unproven start-ups. Bankers do not. The government does not.
Through the wealth, faith, and risk of the affluent, I was able to raise the money necessary to launch my company, but just barely. Were the tax burden greater, it is likely that the company would have remained a dream.
Cut taxes and more money becomes available for new ventures. The risk/reward ratio becomes more favorable. More companies get started and they start with more money. The level of funding is important. Available cash is a restraining factor for any company, but especially for new, fast growth ventures. The government doesn’t cut any slack if cash flow burdens leave a company unable to pay the current month’s payroll taxes.
When taxpayers keep their money, the affluent put it to work, creating jobs, stimulating economic activity, and generating even greater tax revenue. This is intuitive and logical to anyone who has started a business, to anyone with faith in our nation, our economy, and the American people.
Only the economically ignorant, cynical, or faithless would think bureaucrats will get better use out of a dollar than its owner.
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