Not all small businesses deserve a tax break

[applegrove]

Not all small businesses deserve a tax break

MIKE MOFFATT

Globe and Mail Blog

Posted on Friday, April 15, 2011 6:00AM EDT

"SNIP..............

As part of the NDP job creation plan, Jack Layton has promised to lower the corporate income tax rate on small businesses from 11 per cent to 9 per cent, justified on the grounds that small businesses are more likely to create new jobs than larger ones. Unfortunately, the plan is based on a false premise and will likely do little more than put more money in the pockets of wealthy Canadians.

In a recent NBER study, three U.S. economists found that there is no relationship at all between firm size and job creation, once you take into account the age of the firm. It is not small firms that create new jobs, rather it is young firms. They find that there is an "up or out" dynamic with young firms -- most either expand quickly or go out of business.

Due to this effect, young firms face much higher rates of both job growth and job destruction than mature firms. The statistical relationship between small firms and job growth is due solely to the fact that younger firms tend to be smaller; a 15-year old firm with three employees is not likely to be creating many jobs any time soon.

If we are to use corporate tax rates as a tool to create jobs, a more targeted approach would to lower the tax rate on new businesses, rather than on small businesses. Though it is not clear this would be the best approach either, as changes in corporate tax rates are not the most effective tool to use in job creation.

..............SNIP"

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/the-economists/not-all-small-businesses-deserve-a-tax-break/article1985422/?cmpid=nl-news1

Seems to me we should not let the gop get away with blanket statements on tax cuts leading to job creation. And if this is true for small firms it is probably true for mature corporations..though the biggest corporations likely have turnover. Applegrove