Dallas, TX –
One of the topics on the Congressional agenda is taxes - particularly raising taxes. So I thought I'd add my comments, from the perspective of someone who has started and runs a small business. Our little company only has eight employees, several full time independent consultants and a few interns every semester. We're just celebrating our 20th birthday!
I know you've heard the various members of Congress talk about taxing "the rich," and when we see the news reports of Bob Nardelli, the CEO of Home Depot who was paid $130 million, or former Hewlett Packard CEO Carly Fiorina paid $30 million - to leave - it makes your blood boil. But the prosaic truth is that, except for a few wealthy lawyers and doctors, Congress is talking about small business owners including those who are sole proprietors.
Let me give you a picture of just how important small business is to our economy. Here's the real "surge." We're in the middle of what Fortune magazine called "the largest entrepreneurial surge the country has ever seen." In 2005, 672,000 small businesses were created, 30,000 more than started up in 2004 and 12% more than at the very top of the dot-com boom in 1996. Every one of those small businesses in this category has employees. Did you know that the overwhelming number of all jobs are provided by small business? Big business has the overwhelming amount of profit, but small businesses like mine provide the jobs and a huge percentage of first time jobs.
Just as exciting, this "surge" of small businesses includes thousands of companies started by minorities and women. What's causing it? A surprising number just wanted the independence and chance to build equity in something of their own. There are 26 million small businesses, and six million with at least one employee other than the owner. These are companies like mine, or like Blue Moon Pools. Darrell checks our little pool weekly. Or Bill Mayes Pest - which is Bill and his brother and one of their wives who keeps the appointments, or McClain Plumbing which is Mr. McClain and his son, Butch. The more income they make, the more likely they are to hire someone to help.
Most people don't have any idea of the current division of taxes. About 50 percent of people don't pay any income taxes. The top one percent of tax payers pays 29 percent of all taxes, and the top five percent pay a whopping 50 percent. According to Fortune Magazine, entrepreneurs also pay more than 54 percent of individual income taxes, and more than 37 percent of individuals in the highest tax bracket are business owners, again most of the entrepreneurs. Finally, 60 percent of corporate tax returns are what's called S corporations, that's the pool and pest guys as noted above. That is, the person is the business. Numbers tend to make our eyes glaze over, but the translation is people who start businesses that end up being successful tend to work really, really hard, and when they do, they make money. Our society and economy wants to encourage these people, not discourage them.
What Congress could and should do before it starts raising taxes is simplifying taxes. Our little bitty company spends about as much to do our state and federal taxes as we would on an entry level job. That is, if taxes were much, much simpler, we would automatically be able to hire one more person.
Interestingly, simpler taxes raise more revenue. And simpler tax structures have been adopted - with fantastically successful results - in many emerging countries. Even Russia has a flat 13 percent tax! Russia! And that's commonly credited as a main reason for their economic success.
So, before raising taxes to make headlines about the rich, Congress should talk to, and listen to, the small business community. We know how to keep the economy humming.
Merrie Spaeth is a communications consultant who lives in Dallas.
If you have opinions or rebuttals about this commentary, call (214) 740-9338 or email us.