Washington (Sept. 24, 2002) -- A new study presented at the American Enterprise Institute shows that taxes have a great impact in generating entrepreneurial activity.

The study, presented by Roger Gordon, professor of economics at the University of California at San Diego, focused on personal income tax, payroll tax, and corporate tax. The study used data from the years 1964-1993.

According to Gordon and co-author Julie Berry Cullen of the University of Michigan, taxes affect the incentives to become an entrepreneur. This is due, they say, to differences in tax rates on business versus wage and salary income, differences in the tax treatment of losses versus profits through a progressive rate structure and through the option to incorporate, and to risk-sharing with the government.

Among their conclusions which go against conventional wisdom is the finding that a cut in personal tax rates reduces entrepreneurial activity. Such a tax cut, they say, reduces the taxes saved from deducting business losses, while profits remain largely taxed at the corporate tax rate. As a result, risk taking is discouraged.

-- Electronic Accountant Newswire staff

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access