

How to Jumpstart the Economy - Tax Free Small Businesses - drm237
http://www.blogmaverick.com/2008/07/28/how-to-jumpstart-the-economy-tax-free-small-businesses/

======
moocha
This will positively not work.

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
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?

~~~
moocha
Indirectly, yes, since they didn't have to pay the social security
contributions affixed to salaried positions - and since those contributions
are considerable (depending on the job function, to the order of 30% up to 80%
of the pre-tax wage) it was easier to do this than to avoid paying them at all
(also a common practice since tax collection, alas, moves incredibly slow...)

------
wheels
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.

~~~
swombat
True, but the simplest way to do that is to get rid of the damn things
altogether.

I think 25 is a bit high of a cut-off point, but at least 5-people businesses
should escape somehow...

~~~
jraines
How many employees does Berkshire Hathaway have again? Something like 12 at
HQ, I think. That would be a lot of tax revenue to disappear.

~~~
anamax
> How many employees does Berkshire Hathaway have again? Something like 12 at
> HQ, I think. That would be a lot of tax revenue to disappear.

How much does BH currently pay in taxes?

I note that Buffet's estate will go largely untaxed, so it's no skin off his
back to argue that for estate taxes.

------
vaksel
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?

~~~
steveplace
_Seriously why the hell do all government websites look like they were made in
the 90s?_

Because they were.

~~~
vaksel
I know that, but wtf really, The whole tax system is retarded...ooh I know
lets make it hard for people to give us money.

------
sdpurtill
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.

------
swombat
Damn straight. Now all we need is for the government to actually implement
this.

Shouldn't take any time at all, I'm sure they'll be done by tomorrow evening.

~~~
steveplace
Motion to table!

------
fallentimes
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.

~~~
technoguyrob
Thanks, Dr. Paul.

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.

~~~
fallentimes
I know you were half kidding, but I'm _not_ saying eliminate 90% of the
government or put an end to all government programs or anything like that.
Cutting spending by 20% would work wonders. And while I admire the awareness
Ron Paul has raised about government waste, he's crazy and has yet to accept
evolution.

------
rw
Better than tax-free big businesses.

~~~
steveplace
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.

~~~
aggieben
Cuban included in his "proposal" the restriction that this should be allowed
only for individuals and only for one business. If you do it right, there
won't be any Exxons taking advantage of it.

~~~
steveplace
If I worked for Exxon and something like that passed, I would probably become
the sole proprietor of Exxon[205.5] with an offshore company as my main
shareholder, to whom I pay dividends.

Accountants are sneaky, that was my main point, anyways.

------
mrkurt
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.

~~~
msb
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.

------
sethg
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.

~~~
pchristensen
I think he just changed his mind halfway through the post - he started out
talking about taxes but realized that he really meant regulations.

~~~
silentbicycle
Too bad he was writing in pen the whole time, eh?

------
jrockway
Yeah, this sounds like a great idea:

 _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
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.

------
lupin_sansei
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.

------
bprater
I love the concept, but I don't know that it motivates folks that don't have a
business to get out there and start one.

It takes a special kind of mindset to want to strike it out on your own
without that safety net.

------
DanielBMarkham
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.

