Could We Stamp Out Entrepreneurship in America?

In a recent Special Report on the Nordic Countries, The Economist notes that some Californian citizens pay taxes equivalent to those of Sweden. The Swedes,  however, at least receive an excellent educational system and free health care in return.

The American Institute of Certified Public Accountants sponsors a site where you can see how much you pay in taxes. The Total Tax Calculator includes income, payroll, property, excise and capital gains levies. I highly recommend the tool. It’s easy, and a bit shocking.

I tried it with some simple numbers; $250,000 adjusted net income, a $500,000 house, and about $2,000 a month in discretionary spending aside from fuel and phone, with no capital gains or dividends (which took the largest hit in the recent tax bill). In San Antonio, that would incur about $78,000 in total taxes. In Sacramento, the ding would be over $91,000, and in New York City it is just below $97,000. It seems that the Big Apple takes a pretty big bite.

In California, less than 150,000 people in a state of 36,000,000 pay half of the total income taxes. Citizens passed a recent referendum to raise the top income tax rate to 13.3% and the sales tax to 11.25%. Let’s think about that for a moment. If I put 400 people on one side of a room, and 1 person on the other side, and let the 400 vote on whether the one should cough up more money to support them, how do you think that might go?

Last week we discussed the drop in US productivity. Follow this train of thought one step further. What would happen to the American economy if entrepreneurs decided that the rewards associated with working hard weren’t worth the effort?

This week I had discussion with one of my TAB Boards about the cost impact of the Affordable Care Act (wow! Another Soviet-style misnaming, just like the Taxpayer Relief Act) on our profits. Not surprisingly, business owners are discussing strategies for maintaining profits by reducing headcount or outsourcing more work.

On Thursday I also appeared on Jim Blasingame’s “Small Business Advocate” radio show, as I do from time to time. During a commercial break, Jim was talking about how many business owners whom he knows claim to be losing their desire to grow. Whether increased taxation and national health care are really going to crimp the average entrepreneur’s lifestyle remains to be seen. The problem is, they think it will.

We know the economy experiences massive swings with changes in consumer attitudes. How is it impacted by the enthusiasm of small business owners? The NFIB Optimism Index is at miserable levels, with negativity unseen since 1980; the Carter years of stagflation. With small businesses currently creating a massive 75% of all new jobs, how can that not impact the economy’s growth rate?

Regular readers know that I often write about the impact of Baby Boomers, the 2/3 of small business owners approaching retirement. As anyone over 60 can tell you, you start to slow down at that age whether you like it or not. The over-60’s are now 40% of the Boomers. That extrapolates to about 2,500,000 small business owners, or about a quarter of all small employers in the country.

Most of these business owners know that they won’t make a whole lot more money from their businesses. In fact, many believe that they will be making less than they did before. Are they likely to push harder and grow faster, can they coast into retirement, or could they just take their chips and go home?

Besides naming laws in ways that contradicted their true purpose, the Soviets were known for something else: lousy productivity. Their ubiquitous workplace saying from the 60’s through the 80’s was “We pretend to work, and they pretend to pay us.” If American entrepreneurs start deciding to mail it in, we are in serious trouble.