TAXING INCOME OF ENTREPRENEURS January 13, 2017 Eric Toder, Urban - - PowerPoint PPT Presentation

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TAXING INCOME OF ENTREPRENEURS January 13, 2017 Eric Toder, Urban - - PowerPoint PPT Presentation

Jan 31, 2023 228 likes •304 views

TAXING INCOME OF ENTREPRENEURS January 13, 2017 Eric Toder, Urban Institute and Tax Policy Center Conference: Are Entrepreneurs Over-taxed? Taxation of Wealth Accrual of New Firms Development Comprehensive Cash Flow Current Law Stage

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TAXING INCOME OF ENTREPRENEURS

January 13, 2017 Eric Toder, Urban Institute and Tax Policy Center Conference: Are Entrepreneurs Over-taxed?

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www.taxpolicycenter.org 1

Taxation of Wealth Accrual of New Firms

Development Stage Comprehensive Income Tax Cash Flow Tax Current Law Entrepreneur labor contribution Taxable at

  • rdinary income

rates Tax deferred Tax deferred Build-up of Wealth Taxable annually at ordinary income rates Tax deferred Tax deferred Sale of Company Not taxable Taxable at

  • rdinary

income rates Taxable at capital gains rates

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www.taxpolicycenter.org 2

Determinants of Total Tax Burden

Taxation of Wealth Build-up Taxation of Value of Ongoing Firm Tax rate rises with:

  • Capital gains rate
  • f owner
  • Effective tax rate on

corporate income

  • Share of equity held

by taxable investors

  • Tax rate on gains and

dividends

  • Equity premium

Tax rate falls with:

  • Years to maturity
  • Discount rate
  • Marginal tax rate on

interest income

  • Corporate bond rate
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THANK YOU

For more information please contact:

Eric Toder etoder@urban.org View many studies on tax policy issues at www.taxpolicycenter.org

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Are Entrepreneurs Thinking about Tax?

Susan C. Morse Professor of Law, University of Texas School of Law Prepared for Tax Policy Center Panel “Are Entrepreneurs Overtaxed?” January 13, 2017

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Startups are thinking about survival.

(Not about tax.)

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157 163 169 175 181 187 193 199 205 211 217 223 229 235 Chance of Receiving Outside Financing Startup Life in Months

Tax planning doesn’t help startups survive. So startups don’t spend much on tax planning.

Sources: Time trend: SDC VentureXpert data on 21,843 firms that received venture financing 1990-2015. Overall chance of funding: Kauffman Founda`on Survey (May 2010) (certain high-technology SIC codes). See Susan C. Morse & Eric J. Allen, Innova`on and Taxa`on at Start-up Firms, 69 Tax L. Rev. 357 (2016).

Startups that receive

  • utside funding.

Startups that do not.

(And note ver`cal scale only goes up to 20%.)