28th
Mark Cuban on small businesses
Mark Cuban wrote a post on small businesses today that resonated with a lot of people, myself included. The short version of his thesis is: to jumpstart the economy, remove the tax and regulatory/paperwork burdens on small businesses.
My wife Melissa ran a small business for five years, offering interior design consulting services. It’s currently dormant, primarily due to health issues, but also partly due to the fact that her net income simply wasn’t worth the hassles and stresses of operating the business.
She was very successful: she was frequently turning away prospective clients due to an overfull schedule and making a high yearly gross revenue. Her marginal tax rate (including federal, state, and self-employment tax) on that revenue, however, was around 50% (and maybe a bit more). The cost-benefit equation of her post-tax earnings against workload, stress, and liability leans to the negative side, and I don’t expect her to resume operating the business (at least, not to the previous scale) in the future.
Mark focuses on employer taxes and paperwork, which were a small hassle in our case, but the basic tax burden, which he passes over, is still a problem on the margin. (Some of the commenters on Mark’s post, and to a degree Mark himself, fall into the common error of thinking “people don’t decide whether or not to do X based on things like taxes”. Maybe they don’t; maybe most people don’t. People on the margin - like Melissa - do, though; and in her case, there’s less paint, fewer pieces of furniture, less contracting, etc. being sold in the Bay Area because she’s deciding not to operate her business - not to mention fewer well-designed homes!)
His concluding paragraph, however, is spot on:
“In today’s climate, its politically expedient to volunteer taxpayer money as a solution to all problems. That’s wrong. Instead, we should open the door to our country’s Intellectual capital and the entrepreneurial energy that separates us from the rest of the world. Make it easy for entrepreneurs to do what entrepreneurs do, and great things happen. Voters and politicians alike seem to have forgotten what has made this country an economic powerhouse.”
