For Job Growth, Don’t Look To Small Business

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The going home bill for the Idaho Legislature this year was a measure that cuts the state’s corporate tax rate and the income tax rate paid by the state’s top earners.  The individual income tax cut at times was pitched as a way to help small businesses, since many pay taxes through an individual — not corporate — return.

As the U.S. House prepares to vote on a small-business tax cut, NPR’s Tamara Keith offers up this piece about small businesses’ political sway.  In a nutshell, Keith’s point is this:  “[The] intense focus on small businesses may overstate the economic case. Big businesses actually employ far more people than small ones and, according to government data, the overwhelming majority of small businesses don’t employ anyone at all.”

Economist Bruce Bartlett dug into those numbers in a post for The New York Times’ Economix blog earlier this week.  Reviewing economic research, Bartlett says the best job creators aren’t small businesses but new businesses.  (We’ve covered this idea before, in describing the findings of a Brookings Institution study.)

Of the tax cut favored by House Republicans, Bartlett writes:

“The Small Business Tax Cut Act, which was reported out by the House Ways and Means Committee on April 10, would give a one-year, 20 percent tax cut to every business with 500 or fewer employees.

The Joint Committee on Taxation estimates that it will reduce federal revenues by $46 billion. The committee report offered virtually no rationale for the legislation other than that small businesses are good and deserve a tax cut, period.

The linkage between a small business’s tax burden and job creation, however, is tenuous at best.” — The New York Times

Idaho business owner Kevin Settles illustrated this point in an interview about Idaho’s tax cut proposal earlier this year.  The owner of Bardenay Restaurant and Distillery pointed out that it will take a lot more money than the little he’ll save through a marginal income tax cut to make any measurable difference in his business decisions.