Small business tax breaks prevent growth

Latest study by Duanjie Chen and Jack Mintz challenges current incentives, policy rationale

To view the Social Media Release, click here: http://smr.newswire.ca/en/the-school-of-public-policy-at-the-university-of-calgary/small-business-tax-breaks-prevent-growth

CALGARY, May 30, 2011 /PRNewswire/ - In a paper released today by The School of Public Policy, Duanjie Chen and Jack Mintz analyze small business tax policies. The authors find that despite the common belief that small business tax concessions encourage job creation and economic growth, this cannot be substantiated.

"The incentives undermine the neutrality of the overall tax system and the goals of simplification, economic efficiency and fairness,'" the authors write. Ironically, the current system encourages companies to break up into smaller, less efficient units.

Chen and Mintz also refer to a "wall of taxation," saying that smaller companies are penalized as they try to grow. Further, small business tax breaks disproportionately benefit wealthy Canadians.

The analysis assesses the impact of taxes on small business growth by estimating the amount of tax paid on the rate of return to capital as the company gets larger. It shows that as a business grows effective tax rates on capital investments virtually double when the company goes from $1 million to $30 million in asset size.

In addition to challenging current provincial small-business tax policies, the authors provide a clear set of recommendations for government: Encourage investment in depreciable assets, create a capital gains incentive for small businesses going public, and reduce the lock-in effect of capital gains taxes.

This also means replacing the current small business tax deduction and lifetime capital gains exemption, which Mintz and Chen say hinder growth.

The paper can be found by going to www.policyschool.ca, then clicking "latest papers"

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/NOTE TO EDITORS: Media Assets accompanying this story are available as follows:

Video: http://www.newswire.ca/en/releases/mmnr/smr/110509_School_of_Public_Policy_0530.mov

SOURCE University of Calgary - School of Public Policy

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