The Case for Small Business Growth

What do Mark Cuban, Benjamin Franklin, and Steve Jobs all have in common? Not only are they all Americans, but they’re entrepreneurs too. And as an entrepreneur, it’s a safe bet that while starting their venture the last thing on their minds was taxes.

What do Mark Cuban, Benjamin Franklin, and Steve Jobs all have in common? Not only are they all Americans, but they’re entrepreneurs too. And as an entrepreneur, it’s a safe bet that while starting their venture the last thing on their minds was taxes.

Before he was the occasional outspoken and sometimes controversial owner of the Dallas Mavericks, with billions in his back pocket, Mark Cuban was, believe it or not, just an average Joe. He started out as a bartender turned salesman.

America’s first entrepreneur, Benjamin Franklin, before he commercialized the fruits of his fertile mind, was a printer’s apprentice. Fast forward to Steve Jobs, who hit the pavement with only the clothes on his back, hustling for his early Apple computing design.

Did high tax rates ever table the ideas of these great entrepreneurs?

Every presidential election cycle Mark Cuban digs into his archive and reminds readers that entrepreneurs who create something out of nothing don’t care what tax rates are. He reiterates that Bill Gates didn’t monitor the marginal tax rate when he dropped out of Harvard. Michael Dell didn’t wonder what the capital gains tax was when he started PC’s Limited, and then grew it into Dell computers.

So what’s the rub? Entrepreneurs don’t care. They are consumed by an idea, a dream. People who finance entrepreneur’s ideas care about taxes. Small business owners care about taxes. Why? Because tax reductions mean more take home money.

“You need a lot of passion for what you’re doing because it’s so hard,” Steve Job’s once said. “Without passion, any rational person would give up.” Passion drives pursuit of an idea.

Of course while pursuing their idea, taxes may not be foremost in the thought process for billionaire entrepreneur Mark Cuban, but taxes are foremost for the CEO’s that run Mark’s companies, and play a role in decision making – especially in the growth of a small business.

The rub is that small business owners are the backbone of America’s economy – not billionaires like Mark Cuban and Steve Jobs.

According to the Small Business Association, there are 28 million small businesses in the United States. Nearly 1 million small businesses are right here in Ohio, employing about half, or 2.1 million of Ohio’s workforce.

What’s more is that 60 to 80 percent of new jobs are created by small businesses. In fact, in 2010, small businesses accounted for three quarters of net new jobs in the United States.

This might come as a shock to some, but not every small business owner is a billionaire like Mark Cuban.

Seventy percent of the 28 million small businesses in the U.S. are owned and operated by a single person. According to the 2014 State Tax Handbook more than 92 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.) and therefore pay personal income taxes rather than corporate income taxes.

The bad news is that according to the Tax Foundation, Ohio’s personal income tax is one of the highest and most complex. Ohio also ranks 39th in the Tax Foundation’s State Business Tax Climate Index. High taxes are a barrier to job growth.

Take New York, for example, which has the worst business tax climate in the country, and as a result, unemployment is higher than the national average among other things.

In Montana, which has the best state business tax climate in the country, nearly half of Montana’s economic activity comes from small businesses. While economic activity from small businesses in Ohio is around 30 percent.

However, hope is not lost Ohio.

Much has been done to improve Ohio’s business tax climate. For example, Governor Kasich and the Ohio General Assembly created a new tax cut in 2013 which enables a small business owner to deduct 50 percent of the gross income they report on their Ohio personal income tax return. It’s available up to $250,000 and estimates saving of up to $2.7 billion over the next three years.

Tax cuts like this free up capital for hiring more employees (jobs), and spending on new equipment. It’s meaningful tax reforms that will spur growth in Ohio and unleash Ohio’s true potential.

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