Paul L. Caron
Dean


Tuesday, January 3, 2012

Sullivan: New Research Weakens Case for Small Business Tax Relief

Tax Analysts Martin A. Sullivan (Tax Analysts), New Research Weakens Case for Small Business Tax Relief, 134 Tax Notes 54 (Jan. 3, 2012):

Next to support for the troops, nothing is more sacrosanct on Capitol Hill than support for small business. As community leaders and campaign contributors, small business owners have always been near and dear to the hearts of politicians in both parties. The recession has only heightened their stature. There were no bailouts for small businesses. And since 2008 the stubborn persistence of unemployment has elevated their position even more. That's largely because the unchallenged conventional economic wisdom is that small businesses are the source of most job creation.

The National Federation of Independent Business states on its website: "Small business has created about two of every three net new jobs in the United States since at least the early 1970s." And on its website, the Small Business Administration claims, "Small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009." These claims are endlessly repeated on television and in print. And both political parties are perfectly happy to leave them unchallenged. But two new strands of academic research are quietly shredding the idea that policies to support small businesses hold the key to job creation.

  • [John Haltiwanger (University of Maryland, Department of Economics), Ron S. Jarmin (U.S. Census Bureau, Center for Economic Studies) & Javier Miranda (U.S. Census Bureau, Center for Economic Studies), Who Creates Jobs? Small vs. Large vs. Young
  • Erik Hurst & Benjamin Pugsley (both of the University of Chicago, Department of Economics), What Do Small Businesses Do?]

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Comments

I recently saw these statistcs regarding small business.

1) Small businesses represent more than 99% of all employer firms, but employ only about 50% of all private sector workers. That means that "big business," being less than 1% of private sector firms, employs the other half. In other words, 50% of all private sector workers work for less than 1% of U.S. firms. In more other words, less than 1% of U.S. firms is responsible for half of all private sector jobs.

2) Small businesses, being more than 99% of employing firms, pay only 43% of total U.S. private payroll. In otherwords, big business, representing less than 1% of employing private sector firms, pays 57% of the private payroll.

AND MOST IMPORTANTLY:

3) Small business, once again representing more than 99% of private sector employing firms, has created 65% of all new jobs during the last 17 years. That means that big business, being less than 1% of all employers, has created 35% of new jobs.

Now which group creates more jobs more efficiently? Who pays more payroll? Who employs more workers? If we are going to invest in job creation, which group promises better returns on the money?

We should look very carefully at these new studies.

Posted by: Publius Novus | Jan 3, 2012 6:32:10 AM

So, Publius Novus, you say "Small business, once again representing more than 99% of private sector employing firms, has created 65% of all new jobs".

But how many layoffs came from those small businesses? Am most curious.

Posted by: somercet | Jan 3, 2012 1:22:02 PM