I live in Romania. Starting 1999 (IIRC) and ending 2006, there has been some very similar legislation in effect. The only result was a tremendous drop in income tax (which, admittedly, had been very high) since everybody and their grandma opened a small business, quit their job, and immediately came back to the same position as a consultant paid by their own company. Many employers applied gentle pressure in that direction since it got them cost cuts as well.
The clinch is that all these new small businesses contributed absolutely nothing new to the overall economy - the result was a net loss in taxes without economic growth to offset it - which is why the corresponding legislation was abolished in favor of a flat tax on income, profit, and so on (which, in turn, was quite successful at jumpstarting the economy.)
I don't think that there would be any additional advantage to doing that under the model Cuban is proposing. Business owners would still pay tax on their personal income. The actual dollar amount of tax paid by a one person company that pays all profits to its owner/employee would be the same with or without small business taxes, since the business always has a profit of 0.
Business owners may prefer contractors for various reasons still, but this wouldn't add to it. Did business owners in Romania also get a break on the money paid out from the small business as personal income?
It's a little cute hearing multi-billionaires talk about how tax cuts must be the answer to, you know, everything.
I don't think new business are worried about paying taxes, they're worried about dealing with them period. Making taxes trivial to deal with up to a certain point would be much more of a jump-starter.
You'll still have to do all the paperwork to report your employees income etc. + small businesses make up like 99% of gov't revenue from business, so I doubt they'll want to cut you a break.
What they need to do is come up with a better web based solution. Right now the state websites are crap, they don't even tell you which forms you need to do. They need to come up with 1 government website, where you select what your business does, input how many employees you have, input your revenue and expenses, and then based on that info you get a generated list of all the forms you need to submit, already pre-typed with your relevant info. Then add email notifications for when its time to submit a new form.
Seriously why the hell do all government websites look like they were made in the 90s?
I totally agree with him - all the paperwork and bs involved with getting a company started is an artificial barrier to entry because it has nothing to do with the company making money. It's just a test to see if the founder can push paper through a broken system and I'm sure it has stifled a lot of innovation in the US.
The loopholes would be too big. The solution is actually quite simple: cut government spending and lower taxes. Jobs and companies would insource instead of outsource. Anyone who thinks the government is effectively spending tax dollars is out of their mind.
No, but really, I agree with you. However, this might still be a step in that direction, as less tax money for the government to spend means less spending.
The loopholes this would create would lead to some very well paid accountants. I'm all for the idea of letting small businesses get tax breaks, but I think that Exxon could find a way to break themselves up into 25,000 smaller companies.
IRS issues + health care have been the two greatest areas of stress when running my own business. I was a bit naive about both the first time around, I'm not sure I'll do it a second time.
Same here. Incredibly stressful. The only positive side is that after screwing taxes up for a few years and even being audited, the IRS has treated me with the utmost respect. They have waived penalties and interest and given me ridiculously forgiving extensions. A little humility mixed with a touch of patronization can go along way.
I don't get it. The author starts by explicitly saying that the tax rate has not been a big factor in his decision to start a business, and ends by suggesting that if taxes on small businesses were eliminated, it would stimulate the economy.
In between, he mentions the paperwork and regulatory hoops that you have to jump through to start a business, but lowering the tax rate isn't going to make the paperwork less annoying, and many of the regulations only apply to businesses with a certain number of employees.
No taxes of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings
I guess I will start a business that contracts my time out. This company will pay for my insurance, and I'll live in my office. (What can I say, sometimes I work too late to commute home. Which I don't actually have.) One of the perquisites for working for "jrock.us consulting" is that all meals are paid for by the company. The company has a super-fast DSL connection, an HDTV, an extensive array of XBox games, oh... and a Netflix subscription. It will also pay for my trips to conferences (and "conferences"), and if I recall correctly, the contract said the company would buy my girlfriend a diamond once a year!
And oh look, I didn't make any personal income this year! Damn unprofitable company...
My point is, if this is implemented, nobody will pay taxes anymore. That's why it's not been implemented.
In spite of the measures he names, you'll still end up with big businesses made up of a whole lot of small business structured "cost centres" owned by themselves, their wives and their children. This will then have an impact on the tax take, with only a proportion of it being recovered in resulting growth.
I agree with the sentiment - I'm genuinely of the opinion that the only difference between the majority of the tax take and stealing is that the former is done in open. But with huge government industries and debts to maintain there's no room for tax cuts. And if you cut that, you could eventually just issue even tax cuts.
Thought experiment: Why not just go all the way and eliminate taxes altogether?
Let the government send you an itemised bill each year with a suggested amount based on your income. Then you choose whether to pay for each part or not.
Don't like the war in Iraq - don't pay for it. Like public schools - pay double.
This is a good idea. If you are fully vested at and risk in your business and it's a small one, you shouldn't be hounded by every little government agency that can come by for a piece of you.
We want hundreds of thousands of little experiments, not just thousands.
[+] [-] moocha|17 years ago|reply
I live in Romania. Starting 1999 (IIRC) and ending 2006, there has been some very similar legislation in effect. The only result was a tremendous drop in income tax (which, admittedly, had been very high) since everybody and their grandma opened a small business, quit their job, and immediately came back to the same position as a consultant paid by their own company. Many employers applied gentle pressure in that direction since it got them cost cuts as well.
The clinch is that all these new small businesses contributed absolutely nothing new to the overall economy - the result was a net loss in taxes without economic growth to offset it - which is why the corresponding legislation was abolished in favor of a flat tax on income, profit, and so on (which, in turn, was quite successful at jumpstarting the economy.)
[+] [-] reitzensteinm|17 years ago|reply
Business owners may prefer contractors for various reasons still, but this wouldn't add to it. Did business owners in Romania also get a break on the money paid out from the small business as personal income?
[+] [-] lupin_sansei|17 years ago|reply
Looks like Romania enjoys pretty good growth and low unemployment compared to the rest of Europe http://www.heritage.org/index/country.cfm?id=Romania are you sure low taxes haven't helped?
[+] [-] aggieben|17 years ago|reply
[+] [-] wheels|17 years ago|reply
I don't think new business are worried about paying taxes, they're worried about dealing with them period. Making taxes trivial to deal with up to a certain point would be much more of a jump-starter.
[+] [-] swombat|17 years ago|reply
I think 25 is a bit high of a cut-off point, but at least 5-people businesses should escape somehow...
[+] [-] vaksel|17 years ago|reply
What they need to do is come up with a better web based solution. Right now the state websites are crap, they don't even tell you which forms you need to do. They need to come up with 1 government website, where you select what your business does, input how many employees you have, input your revenue and expenses, and then based on that info you get a generated list of all the forms you need to submit, already pre-typed with your relevant info. Then add email notifications for when its time to submit a new form.
Seriously why the hell do all government websites look like they were made in the 90s?
[+] [-] steveplace|17 years ago|reply
Because they were.
[+] [-] ibsulon|17 years ago|reply
In fact, there are people who have done this. I believe Intuit has a pretty good package for that matter.
[+] [-] t0pj|17 years ago|reply
Scary.
[+] [-] sdpurtill|17 years ago|reply
[+] [-] swombat|17 years ago|reply
Shouldn't take any time at all, I'm sure they'll be done by tomorrow evening.
[+] [-] steveplace|17 years ago|reply
[+] [-] fallentimes|17 years ago|reply
[+] [-] technoguyrob|17 years ago|reply
No, but really, I agree with you. However, this might still be a step in that direction, as less tax money for the government to spend means less spending.
[+] [-] rw|17 years ago|reply
[+] [-] steveplace|17 years ago|reply
[+] [-] mrkurt|17 years ago|reply
[+] [-] msb|17 years ago|reply
[+] [-] sethg|17 years ago|reply
In between, he mentions the paperwork and regulatory hoops that you have to jump through to start a business, but lowering the tax rate isn't going to make the paperwork less annoying, and many of the regulations only apply to businesses with a certain number of employees.
[+] [-] pchristensen|17 years ago|reply
[+] [-] jrockway|17 years ago|reply
No taxes of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings
I guess I will start a business that contracts my time out. This company will pay for my insurance, and I'll live in my office. (What can I say, sometimes I work too late to commute home. Which I don't actually have.) One of the perquisites for working for "jrock.us consulting" is that all meals are paid for by the company. The company has a super-fast DSL connection, an HDTV, an extensive array of XBox games, oh... and a Netflix subscription. It will also pay for my trips to conferences (and "conferences"), and if I recall correctly, the contract said the company would buy my girlfriend a diamond once a year!
And oh look, I didn't make any personal income this year! Damn unprofitable company...
My point is, if this is implemented, nobody will pay taxes anymore. That's why it's not been implemented.
[+] [-] cturner|17 years ago|reply
I agree with the sentiment - I'm genuinely of the opinion that the only difference between the majority of the tax take and stealing is that the former is done in open. But with huge government industries and debts to maintain there's no room for tax cuts. And if you cut that, you could eventually just issue even tax cuts.
[+] [-] lupin_sansei|17 years ago|reply
Let the government send you an itemised bill each year with a suggested amount based on your income. Then you choose whether to pay for each part or not.
Don't like the war in Iraq - don't pay for it. Like public schools - pay double.
[+] [-] bprater|17 years ago|reply
It takes a special kind of mindset to want to strike it out on your own without that safety net.
[+] [-] DanielBMarkham|17 years ago|reply
We want hundreds of thousands of little experiments, not just thousands.