The Inclusive Economy
Provide Tax Benefits for Entrepreneurs
By Lauren Stebbins on 01/24/2012 @ 04:30 PM
EDITOR'S NOTE: The Department of Labor's Employment and Training Administration invites its partners in government, business, education, and human services to explore and discuss new ways to govern, invest and manage funds, and deliver services through its Workforce Innovation Forum. CFED's Bob Friedman and Bill Schweke wrote a blog post for the Forum on how the federal tax code should be leveraged to promote self-employment as a sustainable vehicle for job creation. Check it out and share your thoughts through the Forum!
These days, job creation seems to be the topic of conversation nearly everywhere we go. Everyone has ideas – some good, some bad – for how best to battle the unemployment crisis facing our nation.
Less prominent in conversations about how to sustain America’s economic future is the topic of business creation. To identify a truly sustainable job creation strategy, we need to keep in mind three principles:
- New and young businesses are the true job creators, accounting for nearly all net jobs created since the beginning of ‘the Great Recession.
- The federal tax code is the gateway to reaching entrepreneurs, and that code should be used to help, not hinder, the entrepreneurs who create jobs.
- Families need assistance in saving, since most small businesses are financed not through loans, but through savings.
Given these principles, CFED advocates recognition of the importance of leveraging the federal tax code to propel the self-employed to sustainability and job creation. Each year, more than 20 million self-employed businesses file a Schedule C tax return, 2 million of them for the first time. We should recognize the job creation potential of new businesses and the self-employed by making the tax system self-employment friendly. This includes using free tax preparation sites to help low-income entrepreneurs file Schedule C returns and capture benefits due, reducing the taxation of new businesses, and encouraging the savings that enable business start-up and growth.
Such an approach to business growth and job creation would not only entail minimal costs, but could be covered by local, state or foundation funding. Based on earlier programs, the cost per filer is at most a couple hundred dollars in tax preparation expenses (often covered by volunteer labor). Even without new Federal or state policy, local VITA and tax preparation sites can provide tax prep and help new firms claim existing credits. Federal and state employment training funds can and should be used to support self-employment training and support programs.
New business job creation is down to its lowest level in 30 years – 2.2 million new jobs per year. To get it up toward its 30 year highs of 3.6 million will require several changes: recognition of where new jobs come from – new businesses started by entrepreneurs of all incomes, including middle and low-income people; reduction of payroll taxes on new businesses; making the Saver’s Credit refundable and usable for business start-up; extension of Schedule C tax prep; reduction and elimination of asset penalties.
What other strategies might we undertake to promote new job creation via small businesses?