SBE Releases Report

The Small Business and Entrepreneurship Council recently released a report titled "The Great Tax Debate: Tax Increases, Tax Relief, and Tax Reform" in response to the buzz surrounding massive federal budget deficits and changing the U.S. tax system.

SBE Council chief economist Raymond J. Keating, author of the report, said "The debate over taxation has raged in this nation ever since our founding. This is America's ongoing - and generally healthy - 'Great Tax Debate.' Unfortunately, the debate has shifted in a dramatically negative direction over the past two years. For much of the past three decades (with exceptions, for example, in 1990 and 1993), the tax debate targeted how taxes might be reduced and/or how the tax code should be overhauled. But the Obama administration and the current leadership in Congress are overwhelmingly focused on how taxes can be increased."

Keating noted that higher income, capital gains and dividend tax rates, and the consideration of and additional value-added tax (VAT) are part of the current tax debate, and that's a big negative for entrepreneurs, investors, small businesses and their employees, and the overall economy.

In "The Great Tax Debate: Tax Increases, Tax Relief, and Tax Reform," our current income tax system and major tax reform proposals are reviewed according to eight criteria for a sound, pro-growth tax code. Those eight criteria are: progressive vs. proportional taxation, how capital is taxed, how inflation is treated, clarity, simplicity, bureaucracy and intrusiveness, affect on tax avoidance, and impact on government spending.

"The Great Tax Debate" scores the current tax system, a flat tax, a national retail sales tax, and a VAT according to these criteria.

According to the report, the current tax system scores the poorest, and proposals to increase taxes would only make a very bad system even worse. A low flat tax scores best, followed closely by a retail sales tax. A move away from an income tax to a VAT, while better than what we have now, comes up short compared to either a flat tax or a retail sales tax.