TAXES

Letter From The Editor: Rescuing the Economy

Tax policies should favor, not hurt, entrepreneurs.
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Letter From The Editor

Companies that employ fewer than 500 workers outnumber large corporations by about 350 to 1 in the United States. According to the Commerce Department, they also account for more than half of the nation's private work force and half of its nonfarm gross domestic product. The Small Business Administration has done research showing that such companies now create two-thirds of all new jobs and are responsible for more than 55% of innovations and new technology. Obviously, there's no shortage of evidence supporting the crucial role that small and medium-sized companies play in the U.S. economy -- which is one reason it's so disturbing that Washington continues to craft policies that disproportionately favor big business. Because this isn't so much a matter of Republicans versus Democrats as it is of insiders versus outsiders, it probably isn't fair to single out President Bush's recent tax proposals. The Bush plan, however, is the most recent example of this wrong-headed bias. A key feature of his plan -- the exclusion of corporate dividends from individual income taxation -- could actually harm small businesses by attracting investment funds away from entrepreneurs and into the corporations that issue tax-free dividends. Such a move also could increase the cost of borrowing for small businesses by dampening demand for bonds (relative to stocks) even as it increases total debt (by widening the federal budget deficit). What's more, any effort to make dividends more attractive is arguably an anti-growth policy because it would increase the pressure on business to deliver predictable, steady earnings rather than to invest for the future. Certainly the corporate scandals of the past year should be raising questions about the wisdom of relying on large companies as the best tow trucks for the economy. Today's entrepreneurs represent a demonstrably more dynamic and reliable resource. They deserve better than trickle-down treatment.


Contributors


Contributing writer John Case is a veteran observer and analyst of the business world. An authority on entrepreneurship, he coined the term 'open-book management' in Inc, where his articles have appeared for 20 years. He has written five books, including Open Book Management: The Coming Business Revolution.

Formerly a cop and forensic photographer with expertise in automobile theft, Charles Brown now specializes in commercial photography. This month for Case Study, the Raleigh, N.C.-based lensman shot blimps, in the hangar and in the sky but not with the feds, who preferred to remain anonymous.

Emerson College journalism professor Leslie Brokaw delves into the world of radio advertising in this month's Marketing column. She hosted Morning Edition at Albany's NPR affiliate before embarking on a 13-year tenure at Inc. She also writes for the Boston Globe and Boston Magazine.

Walter Russell Mead is a senior fellow at the Council on Foreign Relations and an expert on international political economics. His second book, Special Providence: American Foreign Policy and How It Changed the World, won the 2002 Lionel Gelber Prize, one of the world's top prizes for international affairs writing.


Please E-mail your comments to editors@inc.com.

Last updated: Mar 1, 2003




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